Tobacco-Harm Reduction through Substitution: Cross-Country Estimates of Price Elasticities for Cigarettes, e-Cigarettes and Heated Tobacco Products

Aiming to contribute to the literature on tobacco-harm reduction, this study estimates cross-price elasticities to explore the extent to which excise taxes may, through relative-price effects, induce substitution away from cigarettes towards lower-harm non-combustible alternatives, that is, towards e-cigarettes and heated tobacco products (HTPs). Using data from 33 countries for the period 2018 to 2024, the novel contribution of the study is in its representativity of many world regions in various stages of development, and the inclusion of both the e-cigarette and HTP markets to determine potential substitutability or complementarity. The cross-price elasticity estimates suggest that a rise in cigarette prices may induce a shift from cigarette use towards e-cigarette and HTP use, which would support harm reduction. A price increase in the HTP market may encourage substitution towards cigarette use but has no effect on the e-cigarette market. Changes in the price of e-cigarettes do not induce consumption shifts in the cigarette or HTP markets. Notably, societies' degree of health and harm awareness is significantly and negatively associated with cigarette and HTP sales. Hence, harm-differentiated excise taxes are proposed to catalyse harm-reducing substitutions through two potential conduits, first through price-aware consumers' response to changes in relative affordability and second, through health-conscious consumers' response to the differential harm signals.