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Analysis of Tobacco Price Elasticity in Albania Using Household Level Data

Author

Listed:
  • Aida Gjika

    (Faculty of Economics, University of Tirana, Development Solutions Associates and CERGE-EI, 1001 Tirana, Albania)

  • Edvin Zhllima

    (Faculty of Economics and Agribusiness, Agricultural University of Tirana, Development Solutions Associates and CERGE-EI, 1029 Tirana, Albania)

  • Klodjan Rama

    (Faculty of Agriculture and Environment, Agricultural University of Tirana and Development Solutions Associates, 1029 Tirana, Albania)

  • Drini Imami

    (Faculty of Economics and Agribusiness, Agricultural University of Tirana, Development Solutions Associates and CERGE-EI, 1029 Tirana, Albania)

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.

Suggested Citation

  • Aida Gjika & Edvin Zhllima & Klodjan Rama & Drini Imami, 2020. "Analysis of Tobacco Price Elasticity in Albania Using Household Level Data," IJERPH, MDPI, vol. 17(2), pages 1-11, January.
    • Handle: RePEc:gam:jijerp:v:17:y:2020:i:2:p:432-:d:306641
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    References listed on IDEAS

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