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SMOKERS ARE DIFFERENT: THE HETEROGENEITY OF SMOKERS’ RESPONSES TO PRICE INCREASES

Paolo Liberati (), Francesco Crespi, Massimo Paradiso, Simone Tedeschi and Antonio Sciala'

No 237, Departmental Working Papers of Economics - University 'Roma Tre' from Department of Economics - University Roma Tre

Abstract: This paper contributes to the understanding of smokers’ responses to cigarette prices increases, with a focus on heterogeneity across individuals and over price changes. A stated preference quasi-experimental design grounded on a random utility framework is proposed, based on individual-level data drawn from a survey gathering detailed information on Italian smokers’ habits. On average, the predicted probability of reducing cigarettes consumption increases with the price variation, even though a huge heterogeneity of price responsiveness is found. In terms of potential price elasticity, a polarisation between low and high responsiveness individuals has also been identified. Finally, by comparing even and uneven price variations across price classes, it is shown that uniform across-brand price increases limit product substitutions and downtrading. Estimated heterogeneity provides information to forecast the effect on tax revenue of a tax-driven price change, and some guidance on how to design tax reforms to balance health and revenue goals.

Keywords: : Smoking behaviour; Preference heterogeneity; Price elasticity; Tobacco tax; Random utility models (search for similar items in EconPapers)
JEL-codes: I12 I18 C25 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dcm, nep-hea and nep-upt
Date: 2018-05
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Persistent link: https://EconPapers.repec.org/RePEc:rtr:wpaper:0237

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