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Price increase causes fewer sales of factory-made cigarettes and higher sales of cheaper loose tobacco in Germany

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Author Info
Reiner Hanewinkel (Institute for Therapy and Health Research, IFT-Nord, Kiel, Germany)
Christian Radden (Department of Economics, University of Kiel, Kiel, Germany)
Tobias Rosenkranz (Department of Economics, University of Kiel, Kiel, Germany)
Abstract

Aim of this study is the analysis of the price responsiveness of demand for cigarettes and loose tobacco in Germany over the period 1991-2006. In this period the average consumption of all kinds of cigarettes per capita (German population ≥ 15 years) declined from 634 pieces|quarter to 457pieces|quarter (−28%). Consumption of factory-made cigarettes decreased from about 545 pieces|quarter to 330 pieces|quarter in 2006 (−39%). In the same time consumption of self-made cigarettes increased from 89 pieces|quarter to 127 pieces|quarter (+42%). A one Euro Cent increase in price is associated with 28 cigarettes of all kinds consumed less per quarter. Data indicate that the different types of cigarettes are substitutes, e.g. there is evidence for a positive relationship between the price of factory-made cigarettes and the consumption of hand-made cigarettes. Thus, the increase in such consumption is rather driven by a positive cross-price effect of 17.01. Data indicate additionally an overall decrease in the cigarette consumption and a partial switch to cheaper loose tobacco. The availability of low-taxed loose tobacco may undermine the public health benefits of higher cigarette prices. Price differentials between tobacco products should be reduced in order to maximize the public health benefits of high cigarette prices. Copyright © 2007 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/hec.1282
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Article provided by John Wiley & Sons, Ltd. in its journal Health Economics.

Volume (Year): 17 (2008)
Issue (Month): 6 ()
Pages: 683-693
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Handle: RePEc:wly:hlthec:v:17:y:2008:i:6:p:683-693

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

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  2. Brian S. Ferguson, 2000. "Interpreting the rational addiction model," Health Economics, John Wiley & Sons, Ltd., vol. 9(7), pages 587-598.
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  6. Sandra L. Decker & Amy Ellen Schwartz, 2000. "Cigarettes and Alcohol: Substitutes or Complements?," NBER Working Papers 7535, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July. [Downloadable!] (restricted)
  8. Mei-ling Sheu & Teh-wei Hu & Theodore E. Keeler & Michael Ong & Hai-Yen Sung, 2004. "The effect of a major cigarette price change on smoking behavior in california: a zero-inflated negative binomial model," Health Economics, John Wiley & Sons, Ltd., vol. 13(8), pages 781-791. [Downloadable!]
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  12. 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. [Downloadable!] (restricted)
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