Price Elasticity of cigarette smoking demand in the Philippines after the 2012 Sin Tax Reform Act

• Published in: Preventive medicine 2020-05, Vol.134, p.106042-106042, Article 106042
• Main Authors: Cheng, Kent Jason Go, Estrada, Miguel Antonio Garcia
• Format: Article
• Language: English
• Subjects: Adult; Cigarette; Cigarette Smoking - economics; Cigarette Smoking - epidemiology; Commerce - statistics & numerical data; Costs and Cost Analysis - trends; Female; Humans; Male; Models, Economic; Philippines; Philippines - epidemiology; Prevalence; Price elasticity; Sin tax reform; Smokers - statistics & numerical data; Surveys and Questionnaires; Taxes - economics
• ISSN: 0091-7435; 1096-0260
• DOI: 10.1016/j.ypmed.2020.106042

The Philippine tobacco excise tax reform law passed in 2012 drastically increased cigarette prices which were historically low. A pack of 20 cigarettes costing nine cents (US Dollar) or less was taxed five cents in 2011. When the reform took effect in 2013, each pack was taxed 24 cents which is almost five times the 2011 rate. Alongside the increase in tax is a decline in the prevalence of tobacco use from 28.3% in 2009 to 23.8% in 2015. Seven years since the reform took effect, policymakers are still debating whether the tax introduced was high enough to significantly reduce smoking prevalence. This study estimated the total price elasticity of cigarette demand using regression analyses on the pooled Philippine 2009 and 2015 Global Adult Tobacco Survey data with the excise tax as an instrumental variable. Information from both tax regimes provided the variation in cigarette prices that allowed for the estimation of the price elasticity of smoking participation and intensity. Age, sex, urban residence, educational attainment, employment status, wealth quintile, and media exposure were used as control variables. Results confirm that cigarette demand is inelastic, given that total cigarette price elasticity of demand ranges from −0.56 to −1.10 which means that for every 10% price increase, total cigarette demand declines by 5.6% to 11.0%. This study also provides total price elasticities for different subpopulations. Future studies can use these elasticity estimates to forecast smoking prevalence and provide policy recommendations. •The 2012 Philippine tobacco excise tax reform drastically increased cigarette prices which were historically low.•The reform brought about price variation that can be exploited for the estimation of price elasticity of cigarette demand.•This study used pooled 2009 and 2015 Global Adult Tobacco Survey data.•Endogeneity of price was dealt with through the instrumental variable approach with the tax as the instrument.•Total cigarette price elasticity of demand is -0.56 to -1.10; so for every 10% increase in price, cigarette demand declines by 5.6 to 11.0%.