Estimation of Price and Income Elasticity of Tobacco Demand in Slovakia

This Policy Brief was written by Institute of Economic Research SAS in Slovakia. The policy brief assesses the impact of price and income on tobacco consumption. The researchers use two approaches to estimate these elasticities and simulate the effect of a recent tax increase. The results suggest that increasing cigarette prices by 1% would reduce consumption between 1.006% and 1.195%. A 1% increase in household expenditures, on the other hand, would increase consumption between 0.844% and 0.970%. The implemented increase in the excise tax rate to EUR 84.60 per 1000 cigarettes is unlikely to effectively reduce consumption due to the expected high increase in household expenditures. Instead, the excise rate should be set at EUR 87 per 1000 cigarettes to offset the effect of household expenditure growth on cigarette consumption. The policy brief concludes with recommendations for policy makers to strengthen tobacco control by raising tobacco taxes.

A corresponding Working Paper can be found here.