The demand for cigarettes: new evidence from South Africa

Background There is increasing body of evidence that tobacco excess tax is the most effective policy for reducing cigarette smoking. The effectiveness of taxes, however, are contingent on how the increase impact the retail price. As to whether the burden of the tax increase is equitable, depends on the responsiveness of different socioeconomic groups to price change. This paper provides an extensive analysis of the price and income elasticity of demand for cigarette. Specifically, the identify how individuals from different socioeconomic status response changes in cigarette retail price. Methods A unique large sample of repeated cross-sectional data from South Africa 2008 - 2014 allows reduced-form cigarette demand equations to be estimated by socioeconomic status, gender, race and age group. This data equally allows us to control smoking addiction and other individual characteristics. We employ the pooled ordinary least square and the random effect technique to estimate the price and income elasticity of demand for cigarette. Results We find a negative cigarette price and a positive income effect on smoking intensity. The price effects are stronger for low income individuals, women, Black Africans and young and old individuals. The income effects are higher for high income individuals, men, whites, and older adults. Conclusions The findings highlight the importance of this policy space. Tobacco price increases appear to reduce cigarette consumption more among the vulnerable population and in part may be a policy tool for reducing inequality health