Smokers Are Different: The Heterogeneity Of Smokers’ Responses To Price Increases

This paper contributes to the understanding of smokers’ responses to cigarette prices increases, with a focus on heterogeneity across individuals and over price changes. A stated preference quasi-experimental design grounded on a random utility framework is proposed, based on individual-level data drawn from a survey gathering detailed information on Italian smokers’ habits. On average, the predicted probability of reducing cigarettes consumption increases with the price variation, even though a huge heterogeneity of price responsiveness is found. In terms of potential price elasticity, a polarisation between low and high responsiveness individuals has also been identified. Finally, by comparing even and uneven price variations across price classes, it is shown that uniform across-brand price increases limit product substitutions and downtrading. Estimated heterogeneity provides information to forecast the effect on tax revenue of a tax-driven price change, and some guidance on how to design tax reforms to balance health and revenue goals.