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Is Illicit Tobacco Demand Sensitive to Relative Price?
Author(s) -
Farrell Lisa,
Fry Tim R.L.
Publication year - 2013
Publication title -
economic papers: a journal of applied economics and policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.245
H-Index - 19
eISSN - 1759-3441
pISSN - 0812-0439
DOI - 10.1111/1759-3441.12022
Subject(s) - excise , consumption (sociology) , spillover effect , economics , tobacco use , tobacco industry , smokeless tobacco , public economics , advertising , business , environmental health , microeconomics , medicine , macroeconomics , social science , population , sociology , pathology
A tough fiscal stance has become the norm for discouraging tobacco consumption. Tax and excise rises serve to increase the price of licit relative to illicit tobacco. Consequently, there has been a rise in black market tobacco consumption. This article investigates the degree of substitution between licit and illicit tobacco using novel survey data. We find that illicit tobacco smokers are sensitive to the price ratio between licit and illicit tobacco. This implies that high tobacco taxes have spillover effects that need to be accounted for in policy evaluation.