The price sensitivity of cigarette consumption in Bangladesh: Evidence from the International Tobacco Control (ITC) Bangladesh Wave 1 (2009) and Wave 2 (2010) Surveys
Publication Source

Tobacco Control

Journal article
South-East Asia
Economy status
Lower-middle-income economies

In Bangladesh, the average excise tax on cigarettes accounted for merely 38% in 2009 and 45% in 2010 of the average retail price of cigarettes. It is well below the WHO recommended share of 70% of the retail price at a minimum. There is thus ample room for raising taxes on cigarettes in Bangladesh.

The objective of the paper is to estimate the price elasticity of demand for cigarettes and the effect of tax increases on the consumption of cigarettes and on tax revenue in Bangladesh.

Based on data from Wave 1 (2009) and Wave 2 (2010) of the International Tobacco Control Bangladesh Survey, we estimate the overall impact of a price change on cigarette demand using a two-part model. The total price elasticity of cigarettes is measured by the sum of the elasticity of smoking prevalence and the elasticity of average daily consumption conditional on smoking participation. The price elasticity estimates are used in a simulation model to predict changes in cigarette consumption and tax revenue from tax and price increases.

The total price elasticity of demand for cigarettes is estimated at −0.49. The elasticity of smoking prevalence accounts for 59% of the total price elasticity. The price elasticity of cigarette consumption is higher for people belonging to lower socio-economic status. Increases in taxes would result in significant reduction in cigarette consumption while tax revenue increases.

Raising cigarette price through increased taxation can lead to a win-win-win situation in Bangladesh—it will reduce cigarette consumption, increase tobacco tax revenue and potentially decrease socio-economic inequities.