Quantity, quality, and regional price variation of cigarettes: Demand analysis based on a household survey in China
Publication Source

China Economic Review

Journal article
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Region
Western Pacific
Economy status
Upper-middle-income economies
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Abstract

This paper investigates the price elasticity of cigarettes using an urban household survey in China. We find that cigarette price is an important determinant of smoking. In our two-part model, the overall price elasticity is − 0.82. Nevertheless, tobacco demand is influenced by both price and quality. We net out the quality effect of tobacco demand to obtain standard price elasticities, which are between − 0.70 and − 0.35. In addition, when we estimate two demand systems of Chinese households, the estimated own-price elasticities of cigarettes are − 0.57 and − 0.81. These elasticities suggest that if the tobacco excise tax rate goes up, cigarette consumption will drop rapidly, and government revenue from the tobacco tax will increase.