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The effect of Taiwan's tax-induced increases in cigarette prices on brand-switching and the consumption of cigarettes

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Author Info

  • Yi-Wen Tsai
  • Chung-Lin Yang

    (Division of Health Policy Research, National Health Research Institutes, Miaoli, Taiwan)

  • Chin-Shyan Chen
  • Tsai-Ching Liu
  • Pei-Fen Chen

    (Division of Health Policy Research, National Health Research Institutes, Miaoli, Taiwan)

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    Abstract

    The effect of raising cigarette taxes to reduce smoking has been the subject of several studies, which often treat the price of cigarettes as an exogenous factor given to smokers who respond to it by adjusting their smoking behavior. However, cigarette prices vary with brand and quality, and smokers can and do switch to lower-priced brands to reduce the impact of the tax on the cost of cigarettes as they try to consume the same number of cigarettes as they had before a tax hike. Using data from a two-year follow-up interview survey conducted before and after a new cigarette tax scheme was imposed in Taiwan in 2002, this study examines three behavioral changes smokers may make to respond to tax-induced cigarette price increase: brand-switching, amount consumed, and amount spent on smoking. These changes were studied in relation to smoker income, before-tax cigarette price, level of addiction, exposure to advertizing, and consumer loyalty. We found that smokers, depending upon exposure to advertizing, level of consumer loyalty and initial price of cigarettes, switched brands to maintain current smoking habits and control costs. We also found that the initial amount smoked and level of addiction, not price, at least not at the current levels in Taiwan, determined whether a smoker reduced the number of cigarettes he consumed. Copyright © 2005 John Wiley & Sons, Ltd.

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    File URL: http://hdl.handle.net/10.1002/hec.972
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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal Health Economics.

    Volume (Year): 14 (2005)
    Issue (Month): 6 ()
    Pages: 627-641

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    Handle: RePEc:wly:hlthec:v:14:y:2005:i:6:p:627-641

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    Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/5749

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    1. Lanoie, Paul & Leclair, Paul, 1998. "Taxation or regulation:: Looking for a good anti-smoking policy," Economics Letters, Elsevier, vol. 58(1), pages 85-89, January.
    2. Suranovic, Steven M. & Goldfarb, Robert S. & Leonard, Thomas C., 1999. "An economic theory of cigarette addiction," Journal of Health Economics, Elsevier, vol. 18(1), pages 1-29, January.
    3. Becker, Gary S & Murphy, Kevin M, 1988. "A Theory of Rational Addiction," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 675-700, August.
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    Cited by:
    1. Claudio Agostini, 2010. "Tributación a Los Cigarrillos: Análisis y Propuestas," ILADES-Georgetown University Working Papers inv246, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.

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