Estimating tobacco price elasticity in Kosovo: using the micro data from Household Budget Survey (2007 – 2017) and Deaton demand model

Introduction Literature shows that in low- and middle-income countries (LMICs) tobacco expenditure represents a significant portion of the household budget especially in poor household, it exacerbates poverty by increasing healthcare costs, reducing incomes, and decreasing productivity. This analysi...

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Main Author: Besnik Prekazi
Format: Article
Language:English
Published: European Publishing 2019-03-01
Series:Tobacco Prevention and Cessation
Subjects:
Online Access:http://www.journalssystem.com/tpc/,105209,0,2.html
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spelling doaj-2fff52b102114384bbbf55c3be63cd4e2020-11-25T00:39:16ZengEuropean PublishingTobacco Prevention and Cessation2459-30872019-03-015Supplement10.18332/tpc/105209105209Estimating tobacco price elasticity in Kosovo: using the micro data from Household Budget Survey (2007 – 2017) and Deaton demand modelBesnik Prekazi0Centre for Political Courage, KosovoIntroduction Literature shows that in low- and middle-income countries (LMICs) tobacco expenditure represents a significant portion of the household budget especially in poor household, it exacerbates poverty by increasing healthcare costs, reducing incomes, and decreasing productivity. This analysis aims at estimating price elasticity of demand for cigarettes in Kosovo. Methods Using data from Kosovo Household Budget Survey for the years from 2007-2017, in total 10,217 households with positive expenditure on cigarettes enter the sample for the estimation. Deaton (1988) demand model is used and it uses unit values as a proxy for price, spatial variation, and the structure imposed by a weak separability assumption account for the effect of the quality of the good. Basic idea of the model is that all households within a cluster (typically a small territory unit, such as municipality or village) face the same market price and that within-cluster variations in purchases depend only on total household expenditure and household characteristics, while cross-cluster variations in purchase are due to genuine price variations, among other factors. The estimation of the model consists of three stages. In the first stage, the effects of total household expenditure and other household characteristics are by the means of regression analysis purged from the budget share of the consumption and unit value. In the second stage, cluster average values of budget share and unit values are used to estimate unit value elasticity of consumption. In the final, third stage, we use separability assumption to separate the effect of price elasticity from the quality effects contained in unit value elasticity. Results Results of the estimation indicate a negative price elasticity of cigarettes which amounts to −0.288. Standard error of the elasticity calculated via bootstrapping procedure (1000 replications) indicates that the elasticity is significantly lower than zero (ξ= -0.288; SEξ = 0.097, t = -2.969). Conclusions In Deaton’s model unit value of cigarettes as approximation of the prices are used and find a negative price elasticity of demand for cigarettes of -0.288. Although the previous estimates for Kosovo are non-existing and therefore it is impossible to make any comparison, this result is in line and validated with the theoretically expected and previous estimates of price elasticity for cigarettes for low and middle income countries.http://www.journalssystem.com/tpc/,105209,0,2.htmltobacco price
collection DOAJ
language English
format Article
sources DOAJ
author Besnik Prekazi
spellingShingle Besnik Prekazi
Estimating tobacco price elasticity in Kosovo: using the micro data from Household Budget Survey (2007 – 2017) and Deaton demand model
Tobacco Prevention and Cessation
tobacco price
author_facet Besnik Prekazi
author_sort Besnik Prekazi
title Estimating tobacco price elasticity in Kosovo: using the micro data from Household Budget Survey (2007 – 2017) and Deaton demand model
title_short Estimating tobacco price elasticity in Kosovo: using the micro data from Household Budget Survey (2007 – 2017) and Deaton demand model
title_full Estimating tobacco price elasticity in Kosovo: using the micro data from Household Budget Survey (2007 – 2017) and Deaton demand model
title_fullStr Estimating tobacco price elasticity in Kosovo: using the micro data from Household Budget Survey (2007 – 2017) and Deaton demand model
title_full_unstemmed Estimating tobacco price elasticity in Kosovo: using the micro data from Household Budget Survey (2007 – 2017) and Deaton demand model
title_sort estimating tobacco price elasticity in kosovo: using the micro data from household budget survey (2007 – 2017) and deaton demand model
publisher European Publishing
series Tobacco Prevention and Cessation
issn 2459-3087
publishDate 2019-03-01
description Introduction Literature shows that in low- and middle-income countries (LMICs) tobacco expenditure represents a significant portion of the household budget especially in poor household, it exacerbates poverty by increasing healthcare costs, reducing incomes, and decreasing productivity. This analysis aims at estimating price elasticity of demand for cigarettes in Kosovo. Methods Using data from Kosovo Household Budget Survey for the years from 2007-2017, in total 10,217 households with positive expenditure on cigarettes enter the sample for the estimation. Deaton (1988) demand model is used and it uses unit values as a proxy for price, spatial variation, and the structure imposed by a weak separability assumption account for the effect of the quality of the good. Basic idea of the model is that all households within a cluster (typically a small territory unit, such as municipality or village) face the same market price and that within-cluster variations in purchases depend only on total household expenditure and household characteristics, while cross-cluster variations in purchase are due to genuine price variations, among other factors. The estimation of the model consists of three stages. In the first stage, the effects of total household expenditure and other household characteristics are by the means of regression analysis purged from the budget share of the consumption and unit value. In the second stage, cluster average values of budget share and unit values are used to estimate unit value elasticity of consumption. In the final, third stage, we use separability assumption to separate the effect of price elasticity from the quality effects contained in unit value elasticity. Results Results of the estimation indicate a negative price elasticity of cigarettes which amounts to −0.288. Standard error of the elasticity calculated via bootstrapping procedure (1000 replications) indicates that the elasticity is significantly lower than zero (ξ= -0.288; SEξ = 0.097, t = -2.969). Conclusions In Deaton’s model unit value of cigarettes as approximation of the prices are used and find a negative price elasticity of demand for cigarettes of -0.288. Although the previous estimates for Kosovo are non-existing and therefore it is impossible to make any comparison, this result is in line and validated with the theoretically expected and previous estimates of price elasticity for cigarettes for low and middle income countries.
topic tobacco price
url http://www.journalssystem.com/tpc/,105209,0,2.html
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