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Cigarette demand and tax policy for race groups in South Africa

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  • Gregory Berg
  • William Kaempfer

Abstract

This paper calculates cigarette demand for race groups in South Africa. Elasticities are the most important information a tax policy analyst can have. Elasticities determine how the tax base will change with a change in the tax rate and thus how government revenues will respond to the tax. Elasticities also determine the excess burden that consumers will bear as a result of the tax. As such, own price, crossprice, and expenditure elasticities are calculated along with government revenue maximizing tax rates, and total and excess burdens. Parametric and semiparametric estimation techniques are used and compared. Results show that a tax on cigarettes will discourage nonsmokers from starting to smoke and mainly raise revenue from current smokers. Furthermore, it is found that consumption behaviours between groups are different implying different government revenue maximizing tax rates for each group affecting the distribution of income.

Suggested Citation

  • Gregory Berg & William Kaempfer, 2001. "Cigarette demand and tax policy for race groups in South Africa," Applied Economics, Taylor & Francis Journals, vol. 33(9), pages 1167-1173.
  • Handle: RePEc:taf:applec:v:33:y:2001:i:9:p:1167-1173
    DOI: 10.1080/00036840122752
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    Cited by:

    1. Adel Bosch and Steven F. Koch, 2014. "Using a Natural Experiment to Examine Tobacco Tax Regressivity," Working Papers 434, Economic Research Southern Africa.
    2. Bai Yuanliang & Zhang Zongyi, 2005. "Aggregate cigarette demand and regional differences in China," Applied Economics, Taylor & Francis Journals, vol. 37(21), pages 2523-2528.

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