Elasticity of demand for cigarettes in the US: Evidence from quantile regression analysis

Introduction

Taxation is a major policy tool to reduce tobacco use and regulate the industry. It reduces consumption through increased prices while generating revenue for the government. Price and income elasticities of demand for cigarettes and other tobacco products are essential elements of taxation policies.

This study uses quantile regression framework to estimate cigarette demand elasticities across different consumption and income levels in the US, which is a more accurate representation of tobacco consumption patterns. Our approach accounts for these inherent differences in cigarette consumption and has the promise of leading to more informed and effective tax policies.

 

Methods and Data

This study uses data from nationally representative 2009/10 National Adult Tobacco Survey. This is in contrast to the previous literature where elasticity evaluation relies on the conditional mean effects of price, income, and other determinants of cigarette demand and will likely result in erroneous policy advice and biased forecasts of future demand for cigarettes. This latter approach does not recognize the heterogeneity across different consumption levels that may be a result of vast differences in terms of consumer income and preferences.

Contribution and Policy Implications

Despite the need to get a sound grasp of demand for cigarette across heterogeneous consumer groups, there has been a lack of studies analyzing cigarette consumption through quantile regression method. Another major contribution of this study is that the analysis is carried-on based on the most recent individual-level, nationally representative data for the US. Our results should be of interest to various interested parties, particularly policymakers and government agencies.