Cross-country and panel data estimates of the price elasticity of demand for cigarettes in Europe

Our goal is to provide estimates of the price elasticity of demand for cigarettes in Europe as a basis for public health policy on tobacco taxation.

We use secondary data on cigarette retail sales including illicit trade, prices, tobacco control measures and income from 2010 to 2020 of 27 European countries from Euromonitor, the WHO, the Tobacco Control Scale and the World Bank. We estimate the price elasticity of demand using instrumental variable regressions as well as panel data regressions taking into account that prices and quantities are determined simultaneously in the market.

Based on cross-section data at the country level, we find that during the decade from 2010 to 2020, the demand for cigarettes in Europe has become neither more nor less elastic. Our estimates of the price elasticity based on panel data are around -0.4 (95% CI -0.67 to -0.24), in line with previous estimates for high-income countries. Furthermore, our analysis shows that estimates of the price elasticity of demand that are based on data including illicit trade tend to be lower. This has also been found in the previous literature.

By providing state-of-the-art, up-to-date estimates of the price elasticity of demand that are in line with the previous literature, we show that taxation can still be a cost-effective tobacco policy to reduce cigarette consumption and thus, the burden of smoking.