Analysis of Tobacco Price Elasticity in Albania Using Household Level Data.

Aida Gjika,Klodjan Rama,Drini Imami,Edvin Zhllima

doi:10.3390/ijerph17020432

Abstract

This paper analyzes the determinant factors of tobacco consumption in Albania, which is one of the countries with the highest smoking prevalence in Europe. To empirically estimate the elasticity of cigarettes demand in Albania, the paper uses the Living Standard Measurement Survey (LSMS) applying Deaton’s (1988) demand model. This paper estimates an Almost Ideal Demand System (AIDS), which allows disentangling quality choice from exogenous price variations using unit values from cigarette consumption. Following Deaton’s model, the results suggest that the demand for tobacco is inelastic, with a price elasticity of −0.57. The price elasticity appears to be within the range of elasticity estimates frequently reported for low- and middle-income countries. The results suggest that total expenditure, household size, male-to-female ratio, and adult ratio are important determinants of tobacco demand in Albania. The increase in the tobacco price, which has been mainly driven by increased excises, has demonstrated a significant impact on reducing tobacco consumption. Consequently, the Albanian government may engage in gradual increases in excise taxes given the inelastic tobacco demand.

Highlights

Smoking is known to cause many serious diseases and other health-related problems [1]
Product (GDP)—almost 40% of this cost occurred in developing countries
The yearly cost of tobacco consumption to the Albanian economy are estimated around 270 million Euros

Summary

Introduction

Smoking is known to cause many serious diseases and other health-related problems [1]. According to the World Health Organization, there are 1.1 billion smokers worldwide, of which about 7 million die each year from tobacco use. This figure is projected to grow to 8 million by 2030, with the vast majority (80%) of deaths anticipated to occur in low- and middle-income countries [2]. In addition to health problems, smoking incurs considerable economic costs to individual households and to society as a whole. Goodchild and colleagues [3] estimated that the total economic cost of smoking, including both health expenditures and productivity losses, amounted to PPP. Product (GDP)—almost 40% of this cost occurred in developing countries.

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Results

Conclusion