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Quantity, Quality, and Regional Price Variation of Cigarettes: Demand Analysis Based on a Household Survey in China

In: Economics of Tobacco Control in China From Policy Research to Practice

Author

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  • Yuyu Chen
  • Weibo Xing

Abstract

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 −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 −0.70 and −0.35. In addition, when we estimate two demand systems of Chinese households, the estimated own-price elasticities of cigarettes are −0.57 and −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.

Suggested Citation

  • Yuyu Chen & Weibo Xing, 2016. "Quantity, Quality, and Regional Price Variation of Cigarettes: Demand Analysis Based on a Household Survey in China," World Scientific Book Chapters, in: Teh-wei Hu (ed.), Economics of Tobacco Control in China From Policy Research to Practice, chapter 5, pages 61-87, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813108721_0005
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    2. G Emmanuel Guindon & Umaima Abbas & Riya Trivedi & Sophiya Garasia & Sydney Johnson & Rijo M John, 2023. "Socioeconomic differences in the impact of prices and taxes on tobacco use in low- and middle-income countries–A systematic review," PLOS Global Public Health, Public Library of Science, vol. 3(9), pages 1-32, September.
    3. Hong Liu & John A. Rizzo & Qi Sun & Fang Wu, 2015. "How Do Smokers Respond to Cigarette Taxes? Evidence from China's Cigarette Industry," Health Economics, John Wiley & Sons, Ltd., vol. 24(10), pages 1314-1330, October.
    4. Cao, Jing & Ho, Mun S. & Hu, Wenhao & Jorgenson, Dale, 2020. "Estimating flexible consumption functions for urban and rural households in China," China Economic Review, Elsevier, vol. 61(C).
    5. Hsieh, Chee-Ruey & Lo, Te-Fen, 2017. "Are smokers too optimistic about their health status: Ex ante perception versus ex post observation," China Economic Review, Elsevier, vol. 43(C), pages 169-183.
    6. Kazuki Kamimura, 2012. "Effectiveness of cigarette tax in Japan," Keio/Kyoto Joint Global COE Discussion Paper Series 2011-035, Keio/Kyoto Joint Global COE Program.
    7. John Gibson & Bonggeun Kim, 2019. "The price elasticity of quantity, and of quality, for tobacco products," Health Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 587-593, April.

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    JEL classification:

    • I1 - Health, Education, and Welfare - - Health

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