Price elasticity and other forces shaping cigarette demand in South Africa over 1996-2006

Stellenbosch Working Paper Series No. WP14/2007
Publication date: 2007
Author(s):
Abstract:

The study seeks to re-investigate the price elasticity of South African cigarette demand over the period 1996 to 2006. At first glance, rising cigarette prices seem to have played an important role in reducing cigarette consumption over the sample period, especially during the late nineties. But how dependent is the impact of price increases on general economic conditions and overall health awareness among smokers? Health awareness, in particular, has not received sufficient attention in the South African context, due to a lack of data. Furthermore, previous estimates of price and income elasticity of cigarette demand are based on long annual time series data, which do not allow for changes in underlying tastes and preferences. The paper attempts to disentangle the forces of price, income, health awareness and policy intervention using a quarterly dataset. However, the study also cautions against the upward bias in estimates derived from formal cigarette sales data – in the light of increasing illicit cigarette volumes in South Africa.

JEL Classification:

D12, H21, I18, C40

Keywords:

Price elasticity, Tobacco control, Cigarettes, Illicit cigarettes, Excise duties, Health awareness

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