The effect of cigarette price changes on smoking prevalence by gender: the case of South Africa

Zachary Gitonga (), Nicole Vellios () and Corne van Walbeek ()
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Zachary Gitonga: University of Cape Town
Nicole Vellios: University of Cape Town
Corne van Walbeek: University of Cape Town
Authors registered in the RePEc Author Service: John Paul Dunne

No 59, ERSA Working Paper Series from Economic Research Southern Africa

Abstract: South Africa successfully reduced smoking prevalence by substantially increasing tobacco excise tax and therefore real cigarette prices between 1993 and 2010. Tobacco market structure changed in 2010 following the entry of local tobacco companies and the introduction of cheaper cigarette brands. Illicit cigarettes have also increased significantly. This paper estimates price elasticities of smoking prevalence by gender and examines the effect of an increase in illicit cigarettes and changes in tobacco market structure on smoking behavior in South Africa. Two nationally representative longitudinal data sets and cigarette price data from Statistics South Africa, are used. We use pooled fractional probit correlated random effects and panel LPM models for estimation. Smoking prevalence and price sensitivity are higher among males than among females. Price elasticity of smoking prevalence is about -0.33 overall, -0.43 for males and -0.20 for females. The increase in illicit cigarettes and availability of cheaper brands reduce the effect of price on smoking prevalence and undermine tobacco control policy. The relatively price-inelastic demand implies that there is room for an increase in excise tax on cigarette. We recommend a further increase in excise taxes on tobacco and implementing a track and trace system to control illicit trade.

Keywords: Price elasticity; smoking prevalence; illicit trade; fractional probit; South Africa; structural break; tobacco control (search for similar items in EconPapers)
JEL-codes: D00 D12 D40 E40 E44 G21 I18 (search for similar items in EconPapers)
Date: 2024-09
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Published in ERSA Working Paper Series, September 2024

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