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Implications of Increasing Cigarette Taxes in Peru

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  • Martin Gonzalez-Rozada
  • Alejandro Ramos-Carbajales

Abstract

This paper aims to assess the impact of raising cigarette taxes in Peru on cigarette consumption and if this increment in taxes is regressive. Methods. We estimate total demand price elasticity and by income groups using two datasets, quarterly data and data from a cross-sectional survey of income and expenses. We specify a functional form of the demand for cigarettes in Peru using the quarterly data set and estimate the demand price elasticity for the short and long run. Using the second data set and based on Deaton methodology, the implementation of elasticity estimation and by groups’ elasticity was done in a two-step procedure. Results. Demand price elasticity is -0.7 implying that increasing prices by 10%, via taxes, induce a reduction of consumption of 7%. Demand price elasticity estimations by income groups suggest that poorer families are not more price sensitive than richer ones implying that increasing cigarette taxes could be regressive. Conclusions. Increasing cigarette taxes is the most efficient policy to induce a reduction in smoking. However, in the case of Peru, this increment in cigarette taxes could be regressive.

Suggested Citation

  • Martin Gonzalez-Rozada & Alejandro Ramos-Carbajales, 2016. "Implications of Increasing Cigarette Taxes in Peru," Department of Economics Working Papers 2016_02, Universidad Torcuato Di Tella.
    • Handle: RePEc:udt:wpecon:2016_02
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    References listed on IDEAS

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    2. Chaloupka, Frank J. & Warner, Kenneth E., 2000. "The economics of smoking," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 29, pages 1539-1627, Elsevier.
    3. Remler, D.K., 2004. "Poor Smokers, Poor Quitters, and Cigarette Tax Regressivity," American Journal of Public Health, American Public Health Association, vol. 94(2), pages 225-229.
    4. A. J. Culyer & J. P. Newhouse (ed.), 2000. "Handbook of Health Economics," Handbook of Health Economics, Elsevier, edition 1, volume 1, number 1.
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