Estimation of Price Elasticity of Demand for Cigarettes in Bosnia and Herzegovina – Macro Data Analysis
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Abstract
Tobacco consumption continues to be behavior engaged in by a large percentage of Bosnia & Herzegovina (BiH) citizens. According to the official statistics, nearly half of the state’s adults, that is about 1,200,600 people, consume tobacco products on a daily bases. The state excise policy is one of the main available tools for reducing smoking prevalence because cigarette prices are under the direct impact of this policy. The specific excise on cigarettes introduced in BiH in 2009 and has increased every year so it was the main driver of cigarette price growth. In order to provide research-based evidence for more effective tobacco taxation policies in BIH, in this paper we estimate the price elasticity of demand for cigarettes using the macro-level data for the period 2008 to 2017, on a semi-annual basis. The results have shown that the increase in prices of cigarettes has a statistically significant impact on cigarette consumption, at a significance level of 1%. The estimated price elasticity coefficient is in the range from -0.71 to -0.83, depends on the selected control variables used in the model. It means that the increase in real cigarette prices for 10% led to a decrease in cigarette consumption in the range from 7.1% to 8.3%.
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