Demand for tobacco products in Bangladesh

Tobacco tax increase is considered as one of the most effective means to reduce tobacco consumption and its consequences. An increase in taxes, which results in an increase in the price of tobacco products, reduces consumption. Historically, a number of studies estimated the responsiveness of quantity demanded to a change in price-the price elasticity of demand-of tobacco products in Bangladesh. However, the government's stronger commitment to reducing tobacco use, rising standard of living, rapidly changing cultural norms due to globalisation, and the substantial fall in tobacco use seen in GATS 2017 necessitate an updated measure of price elasticity of tobacco use, which will allow for more accurate answers to questions of tobacco tax policy in the country. This study endeavours to fill this gap in the literature on demand for tobacco products in Bangladesh.

To estimate the price elasticity of demand for tobacco products, namely cigarettes, biris and smokeless tobacco (SLT) products with the 2016 household income and expenditure survey data in Bangladesh.

We used the Deaton model (1997) to estimate the price elasticities of demand for tobacco products using the Household Income and Expenditure Survey (HIES) 2016 dataset of the Bangladesh Bureau of Statistics. The HIES 2016 surveyed 46 076 households spread over 2304 primary sampling units across the country. We have calculated own price elasticities of demand for tobacco products by expenditure groups and by regions (rural and urban).

The estimates of own-price elasticity of demand for cigarette, biri and SLT products are -1.03, -1.34 and -0.30, respectively. The results show that rural households are more responsive to changes in the prices of cigarettes than urban households. Households with low expenditure are found to be more responsive to changes in the price of cigarettes than the households with high expenditure. This suggests that increases in cigarette prices at the lower end would effectively reduce cigarette consumption among the people having low expenditure and improve health equity.

Our results suggest that the demand for smoking tobacco products is responsive to price changes. Therefore, substantial increase in the prices of tobacco products through taxation will result in significant reduction in tobacco use, particularly among the low expenditure households, while increasing government revenue.