Estimation of Tobacco Products Price and Income Elasticity using Aggregate Data

Jovanović, Olivera and Zubović, Jovan and Vladisavljević, Marko and Bodroža, Duško and Ljumović, Isidora and Domazet, Ivana and Đukić, Mihajlo (2018) Estimation of Tobacco Products Price and Income Elasticity using Aggregate Data. Economic Analysis, 51 (3/4). pp. 81-94. ISSN 1821-2573

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Abstract

The main aim of this paper is to estimate long run and short run price and income elasticity for cigarettes based on aggregate level data for period 2002-2016 using Error Correction model. In order to estimate elasticity of demand for tobacco products authors of this paper used aggregate level data. Because the cigarettes make the largest share in overall consumption of tobacco products in Serbia, conducted research is based on approach that 90% of total consumption of tobacco products are cigarettes. This research is unique in the SEE countries, while research conducted in other low and middle income countries in Western Balkan region showed similar results. Price elasticity among the SEE countries is in range between -0.44 and -0.78 Research among low and middle income countries over the world empirically showed that demand for tobacco products is usually inelastic. Analysis conducted in the Republic of Serbia showed that price elasticity ranged between -0.76 and -0.62 while income elasticity ranged between 0.34 and 0.39.

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