Aggregate Analysis of the Impact of Cigarette Tax Rate Increases on Tobacco Consumption and Government Revenue : The Case of Indonesia
This study uses aggregate times series data (annual data from 1970-2001) and monthly data from January 1996 to June 2001 to estimate the price and income elasticity of demand for tobacco products in Indonesia. Using various model specifications use...
Main Authors: | , , , , |
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Format: | Working Paper |
Language: | English en_US |
Published: |
World Bank, Washington, DC
2013
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Subjects: | |
Online Access: | http://documents.worldbank.org/curated/en/2005/01/5701718/aggregate-analysis-impact-cigarette-tax-rate-increases-tobacco-consumption-government-revenue-case-indonesia http://hdl.handle.net/10986/13758 |
Summary: | This study uses aggregate times series
data (annual data from 1970-2001) and monthly data from
January 1996 to June 2001 to estimate the price and income
elasticity of demand for tobacco products in Indonesia.
Using various model specifications used in the cigarette
demand literature, and then selecting the best model, it
estimates the real price elasticity of cigarette demand as
-0.345 and income elasticity of demand as 0.473. This
inplies that a 10 percent real price increase would reduce
consumption by 3.4 percent, and a 10 percent real income
increase would raise consumption by 4.7 percent. The
economic crisis after 1997 was found to increase
consumption, over and above the effects of price and income,
and the warning label on cigarette packs required after 1991
appears to have no significant impact on demand. Estimates
based on the shorter period of monthly data showed less
responsiveness to price and incomes, as would be expected.
The study simulates the effects of a tax increase on total
tobacco excise revenues and predicts that an increase in the
tax level of 10, 50, or 100 percent would increase total tax
revenue by 9 percent, 43 percent, and 82 percent
respectively. The study comments on the effect of possible
switching to cheaper products or illegal purchases. |
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