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KMID : 1170320170230040067
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Korean Journal of Health Economics and Policy
2017 Volume.23 No. 4 p.67 ~ p.81
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The Impact of Cigarette Price on Cigarette Consumption - Some Further Evidence -
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Hong Seong-Hoon
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Abstract
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This paper investigates the impact of cigarette price on cigarette consumption using time-series data from 1981 to 2016. I estimate the cigarette demand function by Hatanaka’s two step method to control for the first order autocorrelation and endogeneity problems of past and future cigarette consumption variables while the trending mechanism is included as regressors to control for non-stationarity of variables. The estimation results show that future cigarette consumption does not affect current cigarette consumption. However, the estimation results employing myopic addiction model show that an increase in current cigarette price reduces the amount of current cigarette consumption while a decrease in past cigarette consumption increases it. This implies that the effect of an increase in cigarette price on the reduction of cigarette consumption is relatively strong in this term, but it is diminishing in the year after. A 10% increase in cigarette price reduces cigarette consumption by 6.3% in the short run, but by 5.0%~5.4% in the long run.
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KEYWORD
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smoking, price elasticity of cigarette demand, Hatanaka two step estimator
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