Tobacco excise and declining tobacco consumption: The case of Papua New Guinea

Excise elasticities of demand for non-cigarette tobacco and cigarettes were calculated for Papua New Guinea for the 14 years 1973-86. Respectively, these were -0.50 and -0.71. This means that 10 percent increases in cigarette and non-cigarette tobacco excise are associated with an estimated 7.1 percent fall in demand for cigarettes and a 5 percent decrease in the demand for tobacco. As tax (excise) elasticities would normally be significantly smaller than price elasticities, these results imply that the consumption of cigarettes and tobacco in Papua New Guinea are more responsive to prices than in the United States and other Western countries. The level of excise is therefore an important and practical instrument for the control of consumption. These elasticities appear to be the first reported for a developing country. It is suggested that if they are indicative of consumer behavior in lower income countries then increasing tobacco and cigarette excise should be considered as an important strategy for the control of smoking in these countries which, because of their large populations, are huge markets for tobacco products and thus major targets for tobacco control measures.