Effect of a large increase in cigarette tax on cigarette consumption: an empirical analysis of cross-sectional survey data

SummaryObjectivesThis study used cigarette price elasticity estimates to assess the possible effects on cigarette consumption of a large increase in cigarette tax. It also investigated different responses to the cigarette tax increase among smokers from different socio-economic backgrounds and with different smoking characteristics.Study designCross-sectional study on 483 valid questionnaires completed during a telephone survey of current smokers aged 15 years and above from all 23 major cities and counties in Taiwan.MethodsThis study analysed the willingness of current smokers to quit smoking or reduce cigarette consumption when faced with a tax increase of NT$22 per pack, which would raise the price of cigarettes by 44%. The Tobit regression model and the maximum likelihood method were used to estimate cigarette demand elasticity.ResultsEstimation results yielded a cigarette price elasticity of −0.29 in connection with a 44% increase in the price of cigarettes. This suggests that smokers will have relatively little response to such an event. The most significant response to the price increase was found among women, low-income smokers, moderately addicted smokers, and smokers who regularly purchase low-price cigarettes. A 44% increase in the price of cigarettes would reduce the average annual per capita cigarette consumption in Taiwan by 14.86 packs; a reduction of 12.87%. The tax increase would also boost the Government's cigarette tax revenue by approximately NT$41.4 billion, and increase cigarette merchants' income by approximately NT$27.4 billion.ConclusionsSince current cigarette prices are low in Taiwan and smokers are relatively insensitive to cigarette price hikes, a large increase in cigarette tax would reduce cigarette consumption effectively, and would also increase the Government's cigarette tax revenue and cigarette merchants' income. Clearly, such a tax would create a win–win outcome for the Government, cigarette merchants and smokers, and it is therefore recommended.