Estimating the price elasticity of demand for cigarettes in South Africa using the Deaton approach

OBJECTIVE: To estimate the price elasticity of demand for South Africa and thereby contribute to growing the evidence base of the likely impact of excise taxes on cigarette demand in low-income and middle-income countries. METHODS: We employ the Deaton method, using wave 5 data from the South African National Income Dynamics Study, to estimate the cigarette price elasticity for South Africa. We used a sample of 6820 households. RESULTS: Of the 6 820 households in the sample for which we had sufficient data, 1341 (19.7%) spent money on tobacco. The price elasticity of demand for cigarettes is estimated at -0.86 (95% CI -1.37 to -0.35), implying that the demand for cigarettes in South Africa declines by 8.6% for every 10% increase in price. CONCLUSION: The negative price elasticity estimate for South Africa indicates that increases in the excise tax are particularly effective in controlling cigarette consumption. However, given the presence of a significant illicit tobacco market in the country, it is important that authorities augment tax measures with strategies that curb the illicit trade in cigarettes.