Price elasticity estimates for tobacco and other addictive goods in India
AbstractThe tax base of tobacco in India is found to be heavily depended on about fifteen percent of the tobacco users who represent cigarettes smokers. Non-cigarette tobacco products used by the majority of tobacco users are largely out of the tax net. Analysis of the price elasticity of various tobacco products would bring out the potential of tax as an instrument to control tobacco use of any kind. In this context, this paper examines how the demand for a variety of tobacco products and addictive goods such as pan and alcohol respond to changes in prices. The spatial variations of prices that are obtained from a cross section of 120,000 households spread across the country have been used for this purpose. Estimates of price elasticities showed that the own price elasticity estimates of various addictive goods in India ranged between -0.5 to -1.0 with bidis, leaf tobacco and alcohol having elasticities close to unity, cigarettes being the least price elastic of all. As against the general notions regarding the complementarity between cigarettes and alcohol, our study nds that these are substitutes at least in urban India. We also observed that, over a five year period, the addictive goods such as bidis and leaf tobacco in India have become slightly more price responsive while elasticity of cigarettes and pan have stabilized. With some assumptions, it is shown that taxes on cigarettes can be raised nearly 2.5 times the current level while that of bidis can be raised tenfold without any fall in revenue.
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Bibliographic InfoPaper provided by Indira Gandhi Institute of Development Research, Mumbai, India in its series Indira Gandhi Institute of Development Research, Mumbai Working Papers with number 2005-003.
Length: 28 pages
Date of creation: Aug 2005
Date of revision:
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Tobacco; Bidi; Cigarette; Alcohol; Consumption; Elasticity; India;
Other versions of this item:
- Rijo M John, 2005. "Price Elasticity Estimates for Tobacco and Other Addictive Goods in India," Microeconomics Working Papers 22395, East Asian Bureau of Economic Research.
- Rijo John, 2005. "Price Elasticity Estimates for Tobacco and Other Addictive Goods in India," Working Papers id:117, eSocialSciences.
- C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
- R22 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Other Demand
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-09-11 (All new papers)
- NEP-HEA-2005-09-11 (Health Economics)
- NEP-MIC-2005-09-11 (Microeconomics)
- NEP-PBE-2005-09-11 (Public Economics)
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