The influence of cigarette price on the cigarette consumption in Spain: a Logarithmic Mean Divisia Index analysis from 1957 to 2018

Abstract

Background: The price elasticity of tobacco emerges as an instrument for minimizing tobacco consumption, sustained by the idea that although tobacco has an addictive nature, an increase in its price causes a decrease in its consumption. However, the price is not the only component of tobacco consumption studied in the literature. Some studies include income as an explanatory component of tobacco consumption. These studies conclude that income affects tobacco consumption positively.

Methods: In this paper, the factors that affect the consumption of cigarettes are measured for the Spanish market using time series data from 1957 to 2018 and by applying the Logarithmic Mean Divisia Index LMDI method. The novel application of this method to this body of literature allows us to verify how effective the price policies that the government has implemented against the consumption of cigarettes have been.

Results: Our results reveal that income is a determining factor that sometimes nullifies the effect of policies when governments increase the price of cigarettes by taxes. In order to reduce the prevalence of smokers, the increase in the price of tobacco must consider the effect of income on consumption, so that it does not cancel the effects of health policy.

Conclusions: It is strongly recommended that tax authorities consider these results before applying anti-smoking policies. If the authorities do not do so, it is possible that they will not obtain the expected results in terms of minimized the cigarette consumption.