Argentina: An empirical Analysis of Cigarette Demand

Source from:  Yahoo.com 06/14/2013

Eugenio Martinez1, Raul Mejia2, Eliseo J Pérez-Stable3

1Instituto de Estudios Laborales y del Desarrollo Económico (IELDE) and Consejo de Investigaciones de la Universidad Nacional de Salta (CIUNSa), Facultad de Ciencias Económicas, Universidad Nacional de Salta, Salta, Argentina

2Centro de Estudios de Estado y Sociedad and Programa de Medicina Interna General, Universidad de Buenos Aires, Buenos Aires, Argentina

3Division of General Internal Medicine, Department of Medicine, Medical Effectiveness Research Center for Diverse Populations, Helen Diller Family Comprehensive Cancer Center, University of California, San Francisco, California, USA

Correspondence to Professor Eliseo J Pérez-Stable, 1545 Divisadero Street, Box 0320 San Francisco, CA 94143-0320, USA; eliseops@medicine.ucsf.edu

Received 1 August 2012
Accepted 5 May 2013
Published Online First 12 June 2013

Abstract

Objective To estimate the long-term and short-term effects on cigarette demand in Argentina based on changes in cigarette price and income per person >14?years old.

Method Public data from the Ministry of Economics and Production were analysed based on monthly time series data between 1994 and 2010. The econometric analysis used cigarette consumption per person >14?years of age as the dependent variable and the real income per person >14?years old and the real average price of cigarettes as independent variables. Empirical analyses were done to verify the order of integration of the variables, to test for cointegration to capture the long-term effects and to capture the short-term dynamics of the variables.

Results The demand for cigarettes in Argentina was affected by changes in real income and the real average price of cigarettes. The long-term income elasticity was equal to 0.43, while the own-price elasticity was equal to ?0.31, indicating a 10% increase in the growth of real income led to an increase in cigarette consumption of 4.3% and a 10% increase in the price produced a fall of 3.1% in cigarette consumption. The vector error correction model estimated that the short-term income elasticity was 0.25 and the short-term own-price elasticity of cigarette demand was ?0.15. A simulation exercise showed that increasing the price of cigarettes by 110% would maximise revenues and result in a potentially large decrease in total cigarette consumption.

Conclusion Econometric analyses of cigarette consumption and their relationship with cigarette price and income can provide valuable information for developing cigarette price policy. Enditem