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The demand for cigarettes: New evidence from South Africa

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  • Alfred Kechia Mukong
  • Ernest Ngeh Tingum

Abstract

This paper estimates the price elasticity of demand for cigarettes in South Africa. Based on longitudinal data drawn from the South Africa National Income and Dynamic Study, we compare the results from the random and fixed effect panel estimation to estimates from the two-part model. We obtain negative price elasticity of demand for cigarettes, with significantly larger price elasticity estimates from the two-part model. The results suggest that a 10% increase in price reduces cigarette consumption by 4.3% for the economy brands and 6.9% for the mid-price brands. However, we find that over the same period, estimates from the fixed effect model are statistically insignificant. This is probably due to the limited within variation in both cigarette consumption and cigarette prices. Thus, with between variation models, increased tobacco taxes can, in the presence of the changing market structure, remain a desirable policy tool for reducing cigarette consumption.

Suggested Citation

  • Alfred Kechia Mukong & Ernest Ngeh Tingum, 2020. "The demand for cigarettes: New evidence from South Africa," Development Southern Africa, Taylor & Francis Journals, vol. 37(1), pages 40-54, January.
    • Handle: RePEc:taf:deveza:v:37:y:2020:i:1:p:40-54
    DOI: 10.1080/0376835X.2019.1640108
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    Cited by:

    1. Juan-Pierré BRUWER & Mariaan LOMBARD & Yolandé SMIT & Ankit KATRODIA, 2019. "The Influence of Excise Taxation Levied on Product Sales on the Financial Sustainability of South African Tobacco-and-Alcohol-Selling Small, Medium and Micro Enterprise," Expert Journal of Business and Management, Sprint Investify, vol. 7(1), pages 100-106.
    2. Samuel Asare & Michal Stoklosa & Jeffrey Drope & Aidan Larsen, 2019. "Effects of Prices on Youth Cigarette Smoking and Tobacco Use Initiation in Ghana and Nigeria," IJERPH, MDPI, vol. 16(17), pages 1-14, August.

    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • P22 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Prices

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