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Quantity, quality, and regional price variation of cigarettes: Demand analysis based on a household survey in China

  • Chen, Yuyu
  • Xing, Weibo

This paper investigates the price elasticity of cigarettes using an urban household survey in China. We find that cigarette price is an important determinant of smoking. In our two-part model, the overall price elasticity is -Â 0.82. Nevertheless, tobacco demand is influenced by both price and quality. We net out the quality effect of tobacco demand to obtain standard price elasticities, which are between -Â 0.70 and -Â 0.35. In addition, when we estimate two demand systems of Chinese households, the estimated own-price elasticities of cigarettes are -Â 0.57 and -Â 0.81. These elasticities suggest that if the tobacco excise tax rate goes up, cigarette consumption will drop rapidly, and government revenue from the tobacco tax will increase.

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Article provided by Elsevier in its journal China Economic Review.

Volume (Year): 22 (2011)
Issue (Month): 2 (June)
Pages: 221-232

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Handle: RePEc:eee:chieco:v:22:y:2011:i:2:p:221-232
Contact details of provider: Web page: http://www.elsevier.com/locate/chieco

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