Price Elasticity of Cigarette Demand: Implications for Cigarette Taxation in Bangladesh

This Policy Brief was written by Advancement Through Research and Knowledge (ARK) Foundation in Bangladesh. The researchers estimate that the total price elasticity of demand for cigarettes is -0.71. A 10% increase in the price of cigarettes would reduce smoking by 7.1 percent, meaning that cigarette demand is inelastic. The elasticity of smoking prevalence and intensity are estimated to be -0.67 and -0.04, respectively.

The study finds that income groups respond differently to cigarette price increases. The price elasticity of demand is estimated to be -0.90 and 0.39 in low- and high-income individuals, respectively. The low-income group i significantly more sensitive to price. The difference is not as significant by geographic location. The price elasticity of cigarette is -0.69 in rural areas and -0.59 in urban areas.

The policy brief concludes by recommending that the government significantly increase cigarette taxes and adjust them annually for inflation and income growth in order to reduce consumption, especially among the low-income group.

Professor Dr. Rumana Huque, Mr. S M Abdullah, Mr. Md. Nazmul Hossain