The Impact of Cigarette Price Increases on the Prevalence of Daily Smoking and Initiation in Mexico

The main objective is to analyze the determinants of daily smoking prevalence and smoking initiation in Mexico with data from the Global Adult Tobacco Survey (GATS) 2015. We estimate the determinants of prevalence of daily smoking using a probit model and derive the price elasticity. Using two alternative price variables we find a prevalence price elasticity of around -0.40 suggesting that an increment of 10% in cigarette prices could reduce the daily smoking prevalence by 4.0%. Our results show that the participation demand elasticity (or prevalence price elasticity) is larger, in absolute value, for women than for men. An increase of 10% in price is associated with a 4.6% decrease in the probability of daily smoking among women versus a 3.5% decrease in the probability of daily smoking among men. Additionally, increases in prices affect Mexican youth and older people more than middle-aged people. A 10% increase in cigarette prices reduces the probability of daily smoking by 4.3% among youth between 15 and 24 years old, 3.9% for the middle-aged population, and 4.4% for those more than 65 years old. Smoking onset, or initiation, is modeled using a split-population model, allowing for the possibility that some individuals will never start smoking. At the mean risk age of 18 years, an increase of 10% in prices is expected to delay the onset of daily smoking by 1 year and 4 months. These findings suggest that a public policy of increasing excise taxes on cigarettes, with the objective of increasing prices, could be very effective to reduce daily smoking prevalence and smoking initiation. Moreover, increasing the excise tax would be an effective public policy because the poor, youth, and women would be among the groups to benefit most.