Economic analysis of tobacco demand

Abstract

This tool is one in a series written for use by people who want to research issues in the economics of tobacco control in a specific country. The tools aim to provide clear step-by-step guidance on what analysis to do, how to do it, and how to report and present the results. Tool 3 explains how to estimate the price elasticity of demand for tobacco products, and how these elasticity estimates can be used to predict the likely impact of changes in tax rates on consumption and on government revenues. This tool includes discussions of basic economic and analysis principles (written for non-specialists such as policy makers and analysts) and more advanced technical points (intended for use by the economists and econometricians who will undertake the actual demand analysis). Consumption of tobacco products includes both smoked categories (e.g., cigarettes, hand-rolled tobacco, pipe tobacco, cigars, bidis, kreteks, etc.) and smokeless types (such as snuff and chewing tobacco). In industrialized countries, cigarettes disproportionately influence tobacco epidemics. This tool discusses and presents, in technical detail, each of the steps necessary to conduct an economic demand analysis on tobacco products. In addition, the reader is presented the fundamentals of demand analysis, including its purpose, assumptions, and requirements. In turn, the reasons to intervene in the market for tobacco products stem from the destructive nature of tobacco consumption.