The effects of price and non-price policies on cigarette consumption in South Africa

Research output: Working paper

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DatePublished - Oct 2019
PublisherEconomic Research Southern Africa
VolumeERSA working paper 799
Original languageEnglish

Abstract

The health consequences of smoking are serious and have been frequently detailed. A reduction in tobacco-related mortality hinges upon the ability to reduce tobacco usage. There is overwhelming evidence that higher cigarette prices reduce cigarettes demand, but little is known about the combined e⁄ect of price and non-price policies. This paper extends the analysis of price elasticities by estimating the e⁄ect of changes in price and non-price legislations in South Africa. Annual time-series data from 1961 to 2016 are used, with a policy index constructed to capture the instances of non-price tobacco legislation. The combined impact is estimated using a vector error correction model and a two-stage least squares (2SLS) model. The long-run own-price elasticities lie between -0.55 and -0.72, while the income elasticities lie between 0.39 and 0.49. The coefcients of the changing tobacco policies and changing market structure show that they contribute to a modest reduction in cigarette consumption. The short-run deviations from the steady state are presented using the error correction term. Cigarette demand is responsive to prices and non-pricing policies but failure to control for non-pricing policies overstates the price e⁄ect. This suggests that both prices and non-pricing legislation are e⁄ective in reducing cigarette consumption.

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