Price Elasticity Estimates For Tobacco Products in

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Price Elasticity Estimates for Tobacco Products in India
Article in Health Policy and Planning · June 2008

DOI: 10.1093/heapol/czn007 · Source: PubMed
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Health Policy Plan. 2008 May ; 23(3): 200–209. doi:10.1093/heapol/czn007.
Price Elasticity Estimates for Tobacco Products in India

Rijo M John
Post Doctoral Fellow, Center for Tobacco Control Research and Education, University of
California, San Francisco, CA 94143-1390, USA.
Abstract
The tax base of tobacco in India is heavily dependent on about 14% of tobacco users, who smoke
cigarettes. Non-cigarette tobacco products accounting for 85% of the tobacco consumption
contributes only 15% of the total tobacco taxes. Though taxation is an important tool to regulate
consumption of tobacco, there have been no estimates of price elasticities for different tobacco
products in India to date, which can guide tax policy on tobacco. This paper, for the first time in
India, examines the price elasticity of demand for bidis, cigarettes and leaf tobacco at the national
level using a representative cross-section of households. This study found that own-price elasticity
estimates of different tobacco products in India ranged between −0.4 to −0.9, with bidis (an
indigenous hand-rolled smoked tobacco preparation in India) and leaf tobacco having elasticities
close to unity. Cigarettes were the least price elastic of all. With some assumptions, it is shown
that the tax on bidis can be increased to Rs. 100 per 1000 sticks compared with the current Rs. 14
and the tax on an average cigarette can be increased to Rs. 3.5 per stick without any fear of losing
revenue. The paper argues that the current system of taxing cigarettes in India based on the
presence of filters and the length of cigarettes has no justification on health grounds, and should be
abolished, if reducing tobacco consumption and the consequent disease burden is one of the
objectives of tobacco taxation policy. It also argues that attempts to regulate tobacco use without
effecting significant tax increases on bidis may not produce desired results.
Keywords
Tobacco; bidis; cigarettes; consumption; elasticity; India
Introduction
Ever since the huge morbidity and mortality associated with tobacco became evident, some
nations have tried to regulate its use by various price and non-price instruments. The process
of tobacco regulation has gained momentum in many developing countries, especially after
the implementation of the global Framework Convention for Tobacco Control in 2003 by
the World Health Organization. Taxation is an important price instrument for regulating
tobacco use. As in other countries, cigarettes are taxed in India. However, unlike in other
countries, tobacco consumption in India is characterized by extensive use of non-cigarette
tobacco products, especially in the form of bidis1 and chewing tobacco. In India, 57% of
men and 11% of women in the 15–49 years age group consume tobacco in some form (IIPS
© The Author 2008; all rights reserved.

Corresponding author. 530 Parnassus Ave, Ste 366, San Francisco, CA 94143-1390. Tel: (Office) 415-476-3139. Fax: 415-514-9345.
rmjohn@gmail.com.
1 Bidi is an indigenous tobacco preparation in India made by rolling a dried piece of Temburini leaf (Diospyros melanoxylon) with
0.15 to 0.25 g of sun-dried, flaked tobacco into a conical shape and securing the roll with a thread. Bidis contain only a small amount
of tobacco compared with cigarettes, yet they deliver as much as 45–50 mg of tar and 1.74–2.05 mg of nicotine compared with 18–28
mg and 1.55–1.92 mg of tar and nicotine, respectively, in Indian cigarettes (Gupta et al. 1992).
John Page 2
and Macro International 2007). As of year 2004–05, it is estimated that per capita
consumption of bidis in rural and in urban areas is 31.5 and 18.8 sticks per month,
respectively, while cigarettes consumption is 0.79 and 2.52 sticks, respectively (Government
of India 2006). It is also estimated that there are 119.25 million adult (15+) smokers (110.46
million male and 8.79 million female) in India as of the year 2004 (ERC 2005).
Cigarettes account for only 14% of the tobacco consumption in India. However, they
contribute as high as 85% of the excise revenue collected from tobacco products (ERC
2005). Thus taxation of tobacco products in India is highly skewed in favour of bidis and
chewing tobacco products even though they contribute 48% and 38%, respectively, to the
total tobacco consumption in India (Sunley 2008). A strong case for increasing taxes on
bidis on health grounds has been made by Sunley (2008). He argues that since bidis are at
least as harmful as cigarettes, the taxation on bidis should be increased to match at least that
of the lower taxed cigarettes. Taxes on cigarettes in India are levied on the basis of cigarette
length; the tax ranged from Rs. 168 to Rs. 543 per 1000 sticks for non-filtered cigarettes and
Rs. 819 to Rs. 2163 for filtered cigarettes in financial year 2007–08 (Table 1).2 The tax on
1000 sticks of handmade bidis, on the other hand, is a meager Rs. 14. Machine-made bidis,
which account for only 2% of total bidis produced in India, are taxed at Rs. 26 per 1000
sticks. There are no stated reasons why bidis are taxed at such a low rate compared with
cigarettes in India, though it is presumed that it is mostly economically weaker people who
smoke bidis and thousands of poor households are involved in the production of bidis. The
price advantage that bidis enjoy over cigarettes is largely due to the huge discrepancies in
taxes on these products and this could be the single greatest reason why bidis account for a
major proportion—77% by the weight of tobacco (Sunley 2008)—of smoked tobacco in
India.
Apart from bidis and cigarettes, a wide range of alternative tobacco products are consumed
in India such as leaf tobacco, hookah, zarda, cheroot and snuff. Some of these are chewed
and some smoked. However, bidis, cigarettes and leaf tobacco together account for almost
95% of the tobacco that is consumed in India. Most non-cigarette tobacco products in India
are much cheaper than cigarettes. The fact that the relatively expensive cigarettes account
for only a small fraction of tobacco use in India is an indication that price hugely affects
consumption. If the tobacco products are sufficiently price responsive, an increase in the tax
rate of these goods will have the effect of reducing the consumption substantially, while
raising the tax revenue.
There is overwhelming evidence from other countries (Chaloupka and Warner 2000) that
increased taxes on tobacco leads to a reduction in consumption. Estimates of price-elasticity
of demand for cigarettes from developed countries range from −0.25 to −0.50. The estimates
from low-income and middle-income countries suggest that price elasticity of demand varies
between −0.50 to −1.00 (Chaloupka et al. 2000). Analyses from various South East Asian
countries have found that short-run price elasticity estimates for tobacco products range
from −0.17 to −0.78, while long-run estimates ranging from −0.4 to −1.21 (Guindon et al.
2003).
Estimation of price elasticities for different tobacco products has received little attention in
India. The only known estimate is for cigarettes for the sample period 1981–82 to 1992–93,
and is estimated to be −0.67 (Sarma 2000). Comparable and more recent estimates for other
tobacco products as well as cigarettes are essential to formulate any comprehensive price
control measures. To the best of the author’s knowledge there is no study that provides
information on the price elasticity of different tobacco products in India. Hence this paper,
2The exchange rate for Indian Rupees was roughly Rs.40 to one US Dollar during this period.
John Page 3
for the first time in India, examines the price elasticity of demand for bidis, cigarettes and
leaf tobacco at the national level.
In the next section, a brief discussion of the data on consumption of tobacco in India is made
followed by a discussion of the methodology of elasticity estimation used in this paper. The
spatial variation in prices of tobacco products is then used to estimate own- and cross-price
elasticities of bidis, cigarettes and leaf tobacco.
Unit values and prices

The National Sample Survey Organization (NSSO), under the Ministry of Statistics and
Program Implementation, Government of India, conducts nationwide sample surveys every
5 years on the consumption habits of households in India. The survey conducted from July
1999 to June 2000 collected information on consumption and various household
characteristics of 120,309 households spread over 10,140 villages. The consumption goods
included a variety of tobacco products along with more than 500 food and non-food items.
The survey asked for the quantity purchased as well as the expenditure incurred for
consumption of various products over the last 30 days prior to the date of interview.
According to this survey, at least one member in 62% of the rural households and 40% of
the urban households reported consuming tobacco in some form.
One reason for the dearth of estimates of price elasticities for tobacco in India could be the
lack of sufficient data on prices and quantity consumed for various tobacco products. While
NSSO surveys provide cross-sectional information on households’ expenditure and quantity
consumed of various tobacco products, they do not provide direct information on prices.
Various attempts have been made in the literature to estimate price responses in such cases.
One approach is to use available regional price data used normally for constructing
consumer price indices. These data can be merged with the NSSO data by associating with
each household the prices available from the nearest collection centre at the time closest to
the reporting period for that household. The combined data can then be used to estimate a
demand system with individual households as the unit of analysis.3 However, such a
procedure may give inaccurate estimates, as prices are not collected from each and every
desirable location (Deaton 1997: 283). Nor are they available at the desired level of
disaggregation. Since prices of tobacco products are not available from such collection
centres for the level of disaggregation used in this analysis, this approach could not be used
in this paper.
Another approach would be to treat unit values (expenditure divided by quantity) collected
in the surveys themselves as prices. Table 2 gives average unit values, budget shares (both
of them averaged only over households who purchased at least one of the tobacco products)
and percentage of households consuming each tobacco product. The table shows the
weighted averages using inverse sampling probabilities as weights so that the estimates
should be representative of the corresponding rural and urban households in India. If we
were to consider the unit values as prices it means that the price of bidis, cigarettes and leaf
tobacco in rural India is 17 paisa/stick, Rs. 1.40/stick and Rs. 70/kg. respectively. In urban
India it is 21 paisa/stick, Rs. 1.32/stick and Rs. 75/kg. respectively. (One hundred paisa is
equivalent to one Indian Rupee.) While the unit values in rural and urban India for both bidis
and leaf tobacco are as expected, those for cigarettes are counter to expectation. One would
expect a higher average price for cigarettes in urban than in rural India since much of the
high priced cigarettes are sold in urban India. However, since more cigarettes smokers are in
urban India and if a large number of cigarettes smokers use low priced cigarettes, it is
3See Alderman (1988) where such an exercise is done for Pakistan.
John Page 4
possible to have a lower average price for cigarettes in urban India relative to that in rural
India. As we see later, the variability is very high for cigarettes prices in rural India versus
urban India, meaning that some of the cigarettes smokers in rural India are using
substantially higher priced cigarettes than others. Having said that, it should be also noted
that unit values are not the same as prices for the reasons explained below. Because of this,
unit values cannot be used as they are to estimate price elasticities.
Unit values are not the same as prices due to two reasons, as Deaton (1997) points out. First,
unit values also reflect quality. Since unit values are computed by dividing expenditures by
physical quantities, they do not take into account the nature of heterogeneity of the
commodity. For example, when households report quantity and value of cigarettes, the
interviewer has to overlook the fact that cigarettes are a heterogenous commodity, and that
price varies according to the quality chosen. Consumers, in general, adapt to changes in
price not only by changing the quantity purchased but also by changing the quality. Hence,
an estimate of price elasticity using unit values will lead to overestimation. Secondly, unit
values are subject to measurement errors since the measurement error in quantity is
transmitted to unit values. Thus, unit values are ‘contaminated’ by both measurement errors
and quality variations. However, unit values also contain price information which can be
captured and made use of in estimating price elasticities. A theoretical model was developed
by Deaton (1988, 1997), wherein consistent estimation of price elasticities was made
possible with the spatial variation in unit values from survey data. This model is used to
derive own- and cross-price elasticities for tobacco products in this paper.
According to this model, by studying the spatial variation in unit values, one should be able
to assess the extent of spatial variation in prices. A simple way of examining the spatial
variation in prices, which makes the temporary supposition that quality variations are
negligible, is to regress log of unit values on dummy variables representing village/urban
units.4 This regression is nothing but a decomposition of variance of unit values over
villages, similar to an ANOVA regression.
Table 3 provides the extent and significance of the spatial variation in prices (unit values)
along with the source of variability separately for rural and urban India. The first column in
each panel shows the standard deviation of the logarithms of unit values multiplied by 100
so that the figures can be interpreted as percentage variability. Leaf tobacco seems to have
maximum variability in both rural and urban areas. F and R2 are the F-statistics and R2-
statistics from this regression. What we are looking for here is evidence that unit values are
informative about prices. Since prices should not vary much within villages over a short
period of time, there should be significant F-statistics for the village effects. In other words,
village dummies should explain a large share of the total variation in logarithm of unit
values. We observe that almost 70% of the variation in price is explained by variability
between villages for all three goods. Within village variation is thus relatively small. A test
for the broad regional effects was also conducted.5 Column F-reg in each panel shows the F-
statistics for the regression of log unit values on region dummies and it shows strong
evidence of regional price variation. The F-statistics are significant at the 1% level for all
regressions. Information from the broad regional variation and stronger inter-village
variation of unit values can thus be used to estimate a demand model proposed by Deaton
(1997) for the products under consideration. The following section briefly introduces the
model of price elasticity estimation.
4Villages are the First Stage Units (clusters) in the NSSO surveys. For urban areas they are referred to as urban Frame Survey Blocks.
There are 6018 villages and 4122 blocks in the data.
5NSSO divides the entire geographical region of the survey into 78 regions which are called NSSO regions.
John Page 5
Estimating price elasticity from unit values

Due to the large volume of equations involved in the model, only a brief introduction to the
model is given here. A detailed exposition of the methodology can be found in Deaton
(1997). This is a model of consumer behaviour in which households choose both quantity
and quality so that expenditure on a good is the product of quantity, quality and price,
thereby implying that unit value is price times quality. Thus, this is a model where utility
depends not only on quantity, but also on quality, giving an augmented utility function.
Commodities are defined as collections of heterogeneous goods and quality is defined as a
property of commodity aggregates. Because unit values are defined to include quality, the
analysis must take into account price and income elasticities of quality as well. The model
requires that households are geographically clustered within the sample.
Village demand patterns, as represented by the budget shares, are regressed on the average
village prices, as represented by unit values. The following two equations link the budget
shares and unit values to household expenditures, other household characteristics and the
underlying prices of commodities.
(1)
(2)
WGic is the budget share of good G in the budget of household i living in village (cluster) c.
The budget share of the household is taken to be a linear function of the logarithm of total
household expenditure, x, a vector of household characteristics, Z, and the logarithm of N
prices where N is the number of commodities.6 However, coefficients of these equations are
not elasticities, which need to be calculated. The derivation for the same can be found in
Deaton (1997). The first element of the residual in equation (1), fGc, is a village-level effect
that is the same for all households within a village and it can be thought of either as a
‘random effect’ or as a ‘fixed effect’.7 Since both fGc and price are unobserved, it is
necessary to assume that the term fGc is uncorrelated with price in order to estimate the
influence of the latter. The term is the standard error term representing, among other
things, measurement errors in the budget share and taste (quality) variations. The price in
equation (1) is not observed but is related to unit value (UV) as given in equation (2). The
logarithm of unit value is a function of ln x, household characteristics represented by the
vector Z, and price. Since unit value is price multiplied by quality, is the expenditure
elasticity of quality. Differentiating (1) with respect to ln x and defining ∈G to be the
elasticity of expenditure with respect to quantity, yields
, since the logarithm of share is the sum of
logarithms of quantity and quality less the logarithm of expenditure. Rearranging it will
yield the expenditure elasticity of quantity so that the total income elasticity of quantity and
quality together will be .
6The budget share equation here closely follows the one suggested by Working (1943) with an extra price term and household
demographic terms. This has the theoretical advantage of being consistent with a utility function (Deaton 1997). Though the budget
share equation resembles the Almost Ideal Demand System, it is not the same.
7Note that by distinguishing households according to clusters, the model has a data structure that is similar to a ‘panel data
regression’, although coming out of a single cross-section.
John Page 6
(3)
The non-price parameters such as α, β and γ in both the equations can be consistently
estimated using standard OLS regression with the assumption that market prices do not vary
for a given commodity within each village over the relevant reporting period. The model
allows for completing the system of demand equations by adding a composite commodity
which will then exhaust the total household budget. Symmetry restrictions that add to the
precision of parameter estimates are also imposed.8
Empirical results
Households with zero consumption of tobacco are eliminated from the analysis. This is with
the assumption that the preferences of tobacco consumers and non-consumers are
fundamentally different in the sense that tobacco is not an argument in the utility function of
non-users of tobacco for whom tobacco does not give any utility no matter what the price is.
This is not to argue that price has no effect on initiation of tobacco consumption. Even
though there may be theoretical reasons to include all the consumers in the analysis, the
empirical evidence on the effect of prices on the initiation of smoking is mixed (Cawley et
al. 2004). Hence, the inclusion or exclusion of consumers reporting zero consumption is
largely a matter of empirical significance. A previous study9 using the same data has shown
that the large majority of consumers who report zero consumption of tobacco are doing so
not because they are unable to afford it but because tobacco does not figure in their utility
function no matter what its price is. Hence, based on the existing evidence using this data,
this paper excludes all the non-consumers from the analysis. As the non-consumers are
excluded, the analysis is conditional in some sense.10
The set of household socio-economic characteristics that are considered for the regression in
equations 1 and 2 includes: log of household expenditure, log of household size, ratio of
number of adults (14 years of age or more) to household size, ratio of total adult males to
household size, average education of the household (total education, in years, received by all
the members divided by household size), years of education received by the most educated
member in a household, and dummies for religion, social groups and occupational groups.
Region dummies were also introduced to eliminate broad regional taste differences, if any,
that may be not due to regional price differences. These variables are introduced only with
the intention of purging the budget shares and unit values of the household-specific effects
so as to allow for the quality effects and enable consistent estimation of own- and cross-
price elasticities.
Estimates from unit value and budget share regression

Table 4 shows the estimated coefficients from both unit value and budget share equations
along with income (expenditure) elasticities. The coefficient of ln x in the unit value
equation gives the expenditure elasticity of quality. As we can observe, in all cases it is
positive and in most cases significant at the 1% level for both rural and urban India. Among
the different tobacco products considered, cigarettes have the highest expenditure elasticity
8Symmetry-constrained estimates guarantee the unique substitution complementary patterns, ruling out the possibility that good i is a
substitute of good j when j is a complement of i.
9See John (2008) using the same data as in this paper. See also Vermeulen (2003) for a similar exposition using different data.
10Demand elasticities for tobacco products with all households included are available upon request. Only the results for ‘tobacco
consuming households’ are reported here.
John Page 7
of quality, at 0.11 in rural and 0.24 in urban India. This implies that a doubling of the
household total expenditure would raise the average price paid for cigarettes by 11% and
24% in rural and urban India, respectively. This is also evidence that lower income
households spent more on lower ‘quality’ cigarettes, possibly ones without a filter.11
Quality elasticity of bidis is around 5% and that of leaf tobacco is insignificant.
Coefficients on the logarithm of household size are roughly similar in size and opposite in
sign to the coefficients on the logarithm of total expenditure in the unit value regression.
This seems to suggest that increases in household size act like reductions in income. The
estimated coefficients on household size are smaller in absolute size than the coefficients of
total expenditure. With total household expenditure and other household characteristics
remaining the same, an increase in household size has a significant effect of decreasing the
average price paid by the household. It may mean that given total expenditure, as household
size increases, households may increase consumption, therefore resorting to consuming
lower ‘quality’ products which are cheaper. It may be interesting to note here that the
average household size is higher among tobacco consuming households (5.4 and 4.92 in
rural and urban India, respectively) than other households (4.4 and 4.3 in rural and urban
India, respectively) in our data.
Budget share equations also show opposite signs in the case of coefficients of log total
expenditure and log household size. Keeping expenditures and other variables constant, an
increase in household size increases budget shares of bidis and leaf tobacco and it decreases
budget shares of cigarettes in rural India. In urban India, on the other hand, household size
has an increasing effect on budget share allocated to bidis and a decreasing effect on leaf
tobacco and cigarettes. Total expenditure elasticity (sum of the expenditure elasticity of
quantity and quality) is less than one for both bidis and leaf tobacco in both rural and urban
India and is more than unity for cigarettes. High expenditure elasticities of cigarettes imply
that cigarettes are luxury goods both in rural and in urban India. A similar result was
obtained by Suryanarayana (2002) though the author had done the estimation using
aggregate data unlike the household level data that is used in our exercise. An increase in
total household expenditure more than doubles the consumption of cigarettes among rural
households.
Other socio-demographic variables in the regression exert only occasional and modest
effects on unit values and budget shares. The purpose of introducing them in the first stage
regression was only to purge their effects on prices so that second stage estimation of price
elasticities is not affected. Therefore, the results are not discussed here. However, a few
results are worth mentioning. An increase in the male ratio would lead to an increase in
budget spent on bidis in rural and urban India. Education has mild but significant decreasing
effects on the budget share devoted to tobacco consumption, especially bidis. Similarly,
households belonging to the Sikh religious group also exhibited a mild but significant
negative effect on budget share of various tobacco products.
Estimates of own- and cross-price elasticities

Table 5 reports own- and cross-price elasticity estimates for bidis, cigarettes and leaf
tobacco using only tobacco consuming households. Both symmetry-constrained and -
unconstrained estimates are presented here and the results are reported for both rural and
urban households. Values given in parentheses below each coefficient are bootstrapped
standard errors calculated by making 1000 draws from the second stage data, and are
defined as half the length of the interval around the bootstrapped mean, and containing
11There is, however, no conclusive evidence that non-filtered cigarettes are more hazardous than filtered ones.
John Page 8
68.3% of the bootstrapped estimates. Region dummies for the NSSO regions were also used
in these regressions to remove any regional taste differences that may affect the estimated
coefficients. The elasticity in row i, column j, estimates the effect of a change in the price of
good j on the quantity demanded of good i. Elasticity coefficients are relatively well
determined and are comparable to other price elasticity estimates available in the literature
from other developing countries. As we can observe, all of the own-price elasticities
(diagonal elements) are negative and are statistically significant except for cigarettes in
urban India. Many of the cross-price elasticities, however, are not statistically significant.
The last column and row in each panel shows the estimates for a composite commodity or a
residual item for which we have no price information. The elasticities for this were
calculated imposing theoretical restrictions.
As we can observe, own-price elasticity estimates for rural and urban households are
approximately the same, except for cigarettes which are relatively more inelastic in urban
India than in rural India. Elasticity for cigarettes is lower than 0.5, which is in consensus
with the conservative estimates available for cigarettes, whether from developing or
developed countries. On the other hand, there are no comparable studies for bidis and leaf
tobacco for which the elasticities were close to unity. This may be reason enough to justify
the heavy taxation on cigarettes in India, as economic logic supports taxing luxuries which
are highly inelastic.
The present exercise indicates that consumption of tobacco products in India does respond to
changes in prices, though the proportionate increases in price lead to slightly less than
proportionate reductions in consumption in the case of bidis and leaf tobacco, while leading
to much less proportionate reductions in consumption in the case of cigarettes.
Examination of cross-price elasticity from the symmetry-constrained estimates (lower panel

in Table 5) indicates that bidis are complementary to cigarettes and leaf tobacco in rural
India, and to cigarettes in urban India, though many of the other cross-elasticity coefficients
are not statistically significant. An earlier study (John 2006) observed that a large number of
households reporting the consumption of bidis were also consuming other tobacco products
such as cigarettes and leaf tobacco. It established that increased presence of adults, higher
male to female ratio in a household, larger household size and the alcohol consumption habit
of households were important predictors for a higher relative probability of consuming a
combination of tobacco products.
The complementarity between bidis and cigarettes need not be entirely counterintuitive
either. Given the huge difference in the price of bidis and cigarettes in India and the fact that
both these items cater to totally different socio-economic groups, it is perfectly reasonable to
think that consumers who consume either of the products would occasionally try out a few
sticks of the other. Moreover, the complementarity here need not necessarily mean that
increases in the price of one will lead to a dramatic reduction in consumption of the other.
This is primarily because the magnitude of the cross elasticity coefficient is small. If we
examine the coefficient in the case of rural India, we see that the magnitude of the effect of
an increase in price of cigarettes on bidis, and that of an increase in price of bidis on
cigarettes, is different though the directions are the same. The effect of a percentage increase
in cigarette price on bidi consumption is very low, whereas that of a bidi price increase on
cigarette consumption is higher. This is especially true in rural India, for two reasons: (1) the
price of bidis is at a very low base compared with that of cigarettes and (2) a price rise of
bidis may have large budgetary implications for rural households, as bidis are the preferred
form of smoked tobacco consumption there. Hence any increase in the price of bidis will
have greater effects in reducing consumption of cigarettes as well.
John Page 9
Effects of price changes through taxation

Curbing tobacco use is critical for health. However, two counteracting objectives of
government with respect to tobacco, namely generating tax revenue and protecting
households dependent on tobacco-related employment, become crucial while formulating

policies to regulate tobacco use. The public health goal of regulating tobacco use could be
yet another objective for policy makers. In this section I address the tax objective of the
government while regulating demand for tobacco use. Addressing the employment question
is out of the scope of this paper. Using the price elasticity estimates and some key
assumptions, it is possible to calculate the movement of tax revenue and consumption of
various tobacco products. Calculations here are done only for cigarettes and bidis and are
merely expository in nature. The following assumptions were made:
1. there are no substitution effects due to price change
2. change in price is commensurate with change in tax
3. elasticity is constant across the entire range of prices
4. there is no tax evasion or smuggling as a result of increased taxes.
Annual consumption of manufactured cigarettes in India was estimated to be 107.5 billion
sticks and the tax revenue from cigarettes amounted to Rs. 70.86 billion in the financial year
2006–07 (Sunley 2008). Assuming that the tax is collected from all cigarettes consumed,
this yields an average tax per stick of Rs. 659 per 1000. Using the proportion of each type of
cigarette out of total cigarette consumption, and the respective ad valorem tax rates given in
Table 1, we computed an ad valorem tax rate of 38.3% and a retail price of Rs. 1.72 per stick
for an average cigarette in India.
Bidis are taxed at a very low rate with a quantity tax of Rs. 14 per 1000 sticks for man-made
bidis and Rs. 26 per 1000 for machine-made bidis in the year 2007–08. Since man-made
bidis constitute more than 98% of bidis produced in India (Sunley 2008), Rs. 14 is taken as
the initial tax amount. Using the ad valorem tax rate (8.8%) for bidis given in Table 1 and
the tax per stick, the price for an average bidi stick was computed as Rs. 0.16 which
amounts to Rs. 4 per pack of 25 bidis. Similarly, Sunley (2008) notes that the most common
price for a pack of 25 bidis in India is Rs. 4. Annual consumption of manufactured bidis in
India was estimated to be between 750 billion to 1.2 trillion sticks in 2007, 52–70% of
which are not taxed either due to non-compliance or due to small producer exemptions
(Sunley 2008). For the purpose of this simulation, the current consumption of bidis was
taken to be one trillion.12 Tax revenue from bidis for the year 2006–07 was Rs. 4.3 billion.
If tax was collected from all bidis that were consumed, the tax revenue would have been
approximately Rs. 14 billion. The actual tax collection is thus nearly 70% less. In this
simulation exercise the initial tax revenue was taken to be Rs. 14 billion. So the reader
should keep in mind that for all the levels of projected tax revenues for bidis, actual revenue
will be well below the projected revenue unless it is ensured that all bidis consumed in India
are taxed.
Table 6 shows the changes in consumption and tax revenue as a result of changes in tax
amount. Tax shocks (increases in tax as a percentage of the existing tax) are introduced and
the changes in consumption, expenditure and tax revenue are calculated using the price
elasticity in Table 5. The effects are calculated separately for rural and urban India using the
respective elasticities and are later aggregated to obtain the results for all-India as shown in
the table. For this, out of the total cigarettes consumed, 63% were attributed to rural and
37% to urban households as estimated from the NSS data. Similarly for bidis, the
12The conclusions from the simulation are not very sensitive to the initial estimate of the consumption.
John Page 10
proportions were 77% and 23% for rural and urban households respectively. As the table
illustrates, revenue from taxation of bidis increases until tax becomes more than 40% of the
retail price, which would be equivalent to a multi-fold increase in the current taxes on bidis
from the current level of roughly 9% of the retail price. In other words, tax on bidis can be
increased to Rs. 100 per 1000 sticks compared with the current Rs. 14 without any fear of
losing revenue. At that level, the average price of a pack of 25 bidis would be slightly more
than Rs. 6 which is tantamount to a 50% increase in the current average retail price. The
expenditure spent on bidis starts falling only after the tax increase is more than Rs. 25 per
1000 sticks.
Revenue from taxation of cigarettes keeps increasing until tax is almost 76% of the retail
price, which effectively means that the tax on an average cigarette can be increased to Rs.
3300 per 1000 sticks compared with the current Rs.659 without fear of losing revenue. The
expenditure spent on cigarettes would start falling only after the tax reaches at least Rs.3300
per 1000 sticks. Effectively this would mean a 150% increase on the current average retail
price of cigarettes.
Even though consumption of both bidis and cigarettes falls for each small increase in taxes,
substantial increases in retail price through tax are required for the expenditure to decrease.
This is important in the context of India where expenditure on tobacco has crowding-out
effects. While these results are subject to the strong assumption of constant price elasticity,
they nevertheless point to the potential for increasing taxes in order to curb consumption
without losing revenue. This analysis shows the huge potential of taxation as a way of both
generating revenue and curbing consumption.
Discussion and conclusion

This paper provides the first ever estimates of own- and cross-price elasticities of bidis,
cigarettes and leaf tobacco in India. It was found that a doubling of a household’s total
expenditure would have the effect of raising the average price paid for cigarettes by 11% in
rural and 24% in urban India. Cigarettes, unlike other tobacco products, were found to be
luxury goods in both rural and urban India with income elasticity greater than one. Estimates
of own- and cross-price elasticities showed that own-price elasticity estimates of different
tobacco products in India ranged between −0.4 and −0.9, with bidis and leaf tobacco having
own-price elasticities close to unity. Cigarettes were the least price elastic of all. Analysis of
the cross-price elasticities revealed that bidis are a complement to cigarettes. With certain
assumptions, it is shown that taxes on cigarettes and bidis can be raised to many times
higher than the existing rates without fear of losing tax revenue, which reveals the potential
of using taxation as an effective way for both regulating tobacco use and generating tax
revenue.
The analysis here provides strong support for taxing tobacco products whether it is bidis,
cigarettes or leaf tobacco. However, as mentioned in the introduction, taxation of tobacco in
India has been predominantly on cigarettes. The tax on bidis of Rs. 14 per 1000 sticks,
compared with Rs.819 per 1000 of the least taxed filtered cigarette, is negligible in
comparison. Such low taxes on bidis are certainly the most important reason why bidis have
such high price advantage over cigarettes, making them one of the cheapest tobacco
products in the world. It is then no surprise that tobacco consumption in India is unique with
a very high presence of non-cigarette tobacco, especially bidis.
It is not clear why cigarettes bear most of the burden of tax on tobacco while bidis and other
tobacco products are either very lightly taxed or not taxed at all. There are many arguments
for it. One argument is that bidis are largely consumed by economically weaker sections of
John Page 11
the community and taxing bidis could be interpreted as being regressive. Attempts to raise
tax on bidis are often interpreted as an attack on the poor and have been regarded as
politically inexpedient. Secondly, it could also be that taxes on cigarettes are much easier to
administer as there are only three to four cigarette manufacturers in India accounting for
more than 95% of the production (ERC 2005). Production of bidis on the other hand is
highly fragmented and the bidi rolling is done mostly by female home-based workers under
contractors, making it extremely difficult to administer excise taxes (Sunley 2008).
Concerns about the employment of an estimated 4 million people, 76% of them women and
some 8.4% children, who are directly dependent on bidi rolling (Panchamukhi et al. 2007),
could be yet another reason why the bidi industry is protected from larger taxes. Whatever
the reason, any attempt to regulate tobacco use in India without taking effective measures to
reduce consumption of bidis will not produce significant results. Moreover, since bidis are at
least as harmful as cigarettes, increasing the tax on bidis to match that of cigarettes is
justifiable on health grounds, as noted by Sunley (2008).
An increased tax on bidis need not be seen as regressive, as it would have multiple benefits.
First, increased taxes would directly translate to reduced consumption which would have
direct health benefits. Secondly, as high taxes would lead to a substantial decrease in
consumption, it would also have the effect of reducing money spent on consuming tobacco,
provided the tax is large enough. Reduced consumption coupled with reduced expenditure
would leave the poor with extra disposable income. Finally, tobacco taxes have the potential
to increase revenue, a portion of which can be earmarked for rehabilitating poor households
who are directly dependent on bidi rolling.
There is also no clear reason why there is a huge difference between the rates of tax on
cigarettes based on the presence of filters and the length of cigarettes in India. The lowest
taxed filtered cigarettes are taxed at Rs.819 per 1000 sticks, while the lowest taxed non-
filtered cigarettes are taxed at only Rs.168 per 1000 sticks. According to the National
Institute of Cancer, there has been no conclusive scientific study which has shown either that
filtered cigarettes are less harmful than non-filtered cigarettes or that any changes in
cigarette design resulted in a decrease of disease burden associated with smoking. So
cigarettes advertised as ‘light’, ‘low-tar’, ‘filtered’ etc. would not actually reduce the harm
to a smoker, on the contrary it only gives the smoker ‘an illusion of risk reduction’ (National
Cancer Institute 2001). As it is hard to justify different tax rates based on the presence of
filters, it is also hard to justify different tax rates based on the length of cigarettes. The
existing duties on filtered cigarettes range from Rs.819 to Rs.2163, as shown in Table 1.
One can argue that an addicted smoker would smoke more short cigarettes to take advantage
of the lower prices and be able to obtain the same level of tar and nicotine as from a long
cigarette. Hence no justification can be provided for having different tax rates either on the
basis of the presence of a filter or on the basis of cigarette length. Differentiating cigarettes
on such grounds for the purpose of taxation is unwarranted and should be abolished, if
regulating tobacco use is one of the objectives of tobacco taxation. This would simplify tax
structure for cigarettes, improve the tax administration, and above all would help to
communicate the public health message that all cigarettes, regardless of shape and size, are
harmful and should be taxed heavily.
Past studies (Efroymson et al. 2001) have shown the crowding out potential of tobacco
expenditure. Rigorous empirical examination of tobacco expenditures data in India (John
2008) has also shown that increased expenditure on tobacco might result in reduced
expenditures on essential commodities such as food and education. Given that price
elasticity of tobacco products is less than one, one may argue that an increase in taxes will
only result in increased expenditure on tobacco and consequent crowding out. However, as
shown in Table 6, a substantial increase in tax has the ability to decrease the expenditure,
John Page 12
yielding positive benefits for the tobacco users who reduce consumption. This points to the
need for defining the objectives of tobacco taxation itself as a public health policy tool over
and above being a tool to generate revenue. It is important to devise a tax policy for all
tobacco products, including bidis, cigarettes and chewing tobacco products, that will result
in a comprehensive reduction in tobacco use instead of focusing on one particular tobacco
product which comprises only a small portion of tobacco used in India.
Limitations
Though the estimates presented here are useful guides to devise suitable tax policy measures
on tobacco, it should be noted that the conclusions of the paper are not completely without
weaknesses. Much of the weaknesses emerge from the inadequacy of the data itself. First,
the estimates are for the households as a whole whereas much of the tobacco consumption in
India is by adults, especially adult males. Since tobacco is such an important public health
problem, collecting data on tobacco consumption habits at the individual level should be a
priority in future surveys. Secondly, bidis are smoked by poor smokers and have an
estimated price elasticity near unity, whereas cigarettes are smoked by wealthier smokers
and, although their price and tax are much higher than for bidis, have much lower price
elasticities, which suggests differential price elasticity by income levels. Price elasticity for
tobacco is known to be higher among the poor compared with the rich (Farrelly et al. 2001).
The exercise in this paper, however, does not distinguish between different income groups.
Since price information is not directly available, the model depends on the variability of unit
values between clusters. Applying the same model to different income groups separately
will not yield sufficient variability in prices. Knowledge of differential price elasticities
would be particularly useful in the context of India wherein economic disparities determine
the nature of tobacco consumption itself. Collecting large-scale data conducive for detailed
economic analysis should be a priority in this respect.
KEY MESSAGES
• Price elasticities for different tobacco products at a national level have never
been estimated in India
• Different tobacco products in India are price responsive and hence taxation
could be used as a viable tool of regulating tobacco use in India
• Effective regulation of tobacco use in India requires substantial increases in tax
of bidis and other non-cigarette tobacco products, apart from tax increases on
cigarettes
• The existing system of taxing cigarettes in India based on the presence of filters
and the length of cigarettes has no justification on health grounds, and should be
abolished
Acknowledgments
This work was supported in part by a scholarship from Indira Gandhi Institute of Development Research and in part
by a postdoctoral fellowship (CA-113710) from University of California San Francisco. I am indebted to Dr. A.
Ganesh-Kumar, Prof. Kirit Parikh and Dr. Joy de Beyer for their valuable comments and suggestions. I also thank
the participants of 67th Health Economists Study Group Meeting, held at University of Newcastle upon Tyne, UK
(29 June 2005) and participants of the 13th World Conference on Tobacco or Health held at Washington DC, USA
(12 July 2006) for their useful comments on earlier drafts of this paper. I have also benefited from the discussions
with Cecily S. Ray. All errors, however, remain my own.
John Page 13
References
Alderman H. Estimates of consumer price response in Pakistan using market prices as data. Pakistan
Development Review. 1988; 27:89–107.

Cawley J, Markowitz S, Tauras J. Lighting up and slimming down: the effects of bodyweight and
cigarette prices on adolescent smoking initiation. Journal of Health Economics. 2004; 23:293–311.
[PubMed: 15019756]
Chaloupka, FJ.; Warner, KE. The economics of smoking. In: Culyer, AJ.; Newhouse, JP., editors. The
handbook of health economics. Vol. vol. 1B. Elsevier Science; Amsterdam: 2000. p. 1539-627.
Chaloupka, FJ.; Hu, TW.; Warner, KE.; Jacobs, R.; Yurekli, A. The taxation of tobacco products. In:
Jha, P.; Chaloupka, FJ., editors. Tobacco control in developing countries. Oxford University Press;
Oxford and New York: 2000. p. 237-72.
Deaton AS. Quantity quality and spatial variation of price. The American Economic Review. 1988;
78:418–30.
Deaton, AS. The Analysis of Household Surveys. Johns Hopkins University Press for the World Bank;
Baltimore, MD: 1997.
Efroymson D, Ahmed S, Townsend J, et al. Hungry for tobacco: An analysis of the economic impact
of tobacco consumption on the poor in Bangladesh. Tobacco Control. 2001; 10:212–17. [PubMed:
11544383]
ERC. The World Cigarettes I: The 2005 Report. ERC Statistics International plc; Newmarket, Suffolk,
UK: 2005.
Farrelly MC, Bray JW, Pechacek T, Woollery T. Response by adults to increases in cigarette prices by
sociodemographic characteristics. Southern Economic Journal. 2001; 68:156–65.
Government of India. Level and Pattern of Consumer Expenditure, 2004-05. NSS 61st Round (July
2004-June 2005). National Sample Survey Organization, Ministry of Statistics and Programme
Implementation, Government of India; New Delhi: 2006.
Guindon, GE.; Perucic, AM.; Boisclair, D. HNP Discussion Paper, Economics of Tobacco Control
Paper No.11. World Bank; Washington, DC: 2003. Higher tobacco prices and taxes in South-East
Asia.
Gupta, PC.; Hamner, JE.; Murti, PR., editors. Control of tobacco-related cancers and other diseases.
Oxford University Press; Bombay: 1992.
International Institute of Population Sciences (IIPS). Macro International. National Family Health
Survey (NFHS-3), 2005-06: India. Vol. Volumes I & II. IIPS; Mumbai: 2007.
John RM. Household’s tobacco consumption decisions: evidence from India. Journal of South Asian
Development. 2006; 1:101–26.
John RM. Crowding-out effect of tobacco expenditure and its implications on household resource
allocation in India. Social Science and Medicine. 2008; 66:1356–67. [PubMed: 18187245]
National Cancer Institute. Smoking and Tobacco Control Monograph No. 13. US Department of
Health and Human Services, National Institutes of Health, National Cancer Institute; Washington,
DC: 2001. Risks associated with smoking cigarettes with low machine-measured yields of tar and
nicotine. NIH Publication No.02-5074
NSSO. Socio-economic survey, 55th round: July 1999-June 2000, household schedule 1.0: Consumer
expenditure. Government of India; New Delhi: 2000.
Panchamukhi, PR.; Woollery, TA.; Nayanatara, SN. Economics of bidis in India. In: Asma, S.; Gupta,
PC., editors. Bidi smoking and public health: a monograph. Healis Sekhsaria Institute of Public
Health, India; The Centers for Disease Control and Prevention, Office on Smoking and Health,
USA; Tobacco Free Initiative, WHO, Switzerland; Navi Mumbai: 2007. (in press)
Sarma A. Regulating tobacco use: role of taxes. Economic and Political Weekly. 2000; 35:4613–16.
Sunley EM. accessed on 20 Feb 2008India: The tax treatment of bidis. Bloomberg Initiative to Reduce
Tobacco Use. 2008Online at: http://tobaccofreecenter.org/files/pdfs/reports_articles/Sunley-
BidiTax%20FINAL-5Feb08.pdf
Suryanarayana, MH. Household consumption of tobacco in India: an economic perspective. Paper
presented at the seminar, Tobacco Control Research in India, organized by the World Bank and
Tata Institute of Fundamental Research; New Delhi, India. 10-11 April 2002; 2002.
John Page 14
Vermeulen F. Do smokers behave differently? A tale of zero expenditures and separability concepts.
Economics Bulletin. 2003; 4:1–7.
Working H. Statistical laws of family expenditure. Journal of the American Statistical Association.
1943; 38:43–56.
John Page 15
Table 1
Excise duty rates for cigarettes and bidis in India, year 2007–08
Duty as
percentage Proportion of
Duty per 1000 of retail consumption
Tobacco products
sticks in Rs. price of the for the year
most popular 2005–06
brand
Cigarettes 100%
Non-filter cigarettes
≤60mm 168 34% 7%
>60–70mm 546 44% 24%
Filter cigarettes
≤70mm 819 34% 54%
>70–75mm 1323 38% 9%
>75–85mm 1759 59% 7%
>85mm* 2163 NA NA
Bidis 100%
Handmade 14 8.8% ~98%
Machine-made 26 ~2%
Source: Sunley (2008).

*
Filter cigarettes >85mm constitute only a negligible share of the market and their tax is calculated as Rs. 600 or 300% +Rs. 20 whichever is
higher.
NIH-PA Author Manuscript NIH-PA Author Manuscript NIH-PA Author Manuscript
Table 2
Unit values and budget shares of different tobacco products
John
Rural Urban
Commodity % consuming Unit values Share % consuming Unit values Share

Bidis 36.5 0.17 1.72 19.84 0.21 1.34
Cigarettes 3.69 1.40 0.22 9.61 1.32 0.97
Leaf tobacco 19.42 69.86 0.39 7.25 74.73 0.21
Tobacco (Total) 62.63 NA 2.66 39.69 NA 2.93
Note: All values are weighted using sampling weights. Total includes all tobacco products including the ones that are not listed here but are in the NSS data. Unit of measurement for bidis and cigarettes is
number of sticks and that for leaf tobacco is Kg. Unit values are all in Rupees. Budget shares (averaged over households who bought at least one of the tobacco products) are in percentages.
Source: Author’s calculation from NSSO (2000) data.
Page 16
Table 3
Variability in unit values
John
Rural India Urban India
Items SD F-stat F-reg R-sq SD F-stat R-sq F-reg

Bidi 59.8 12.35 0.76 71.63 56.3 4.58 0.68 23.73
Cigarette 63.0 4.08 0.81 7.52 55.7 2.82 0.68 9.75
Leaf tobacco 206.6 7.67 0.68 39.10 227.5 5.72 0.76 11.40
Notes: SD refers to 100 times the standard deviation of log unit values calculated over the households reporting positive consumption. F and R-sq are the F-statistics and R-sq-statistics associated with the
presence of dummy variables for each village in the survey. F-reg is the F-statistics of an ANOVA of log unit values on dummies for 78 regions. All statistics are significant at 1% level.
Page 17
Table 4
Income and household size coefficients and income elasticities
John
Unit value regression Budget share regression
Bidis Cigarettes Leaf tobacco Bidis Cigarettes Leaf tobacco
Coeff P-val Coeff P-val Coeff P-val Coeff P-val Coeff P-val Coeff P-val
Rural India
lnexp 0.048 0.00 0.108 0.00 0.005 0.92 −0.719 0.00 0.435 0.00 −0.226 0.00
lhsize −0.034 0.00 −0.111 0.00 −0.005 0.91 0.116 0.00 −0.456 0.00 0.001 0.93
Observations 24946 3853 13169 43923 43923 43923
F-stat 3.38 0.00 2.34 0.00 0.76 0.77 197.70 0.00 99.78 0.00 91.80 0.00
Adjusted-R 0.695 0.618 0.589 0.441 0.294 0.500
Clusters 5029 1994 2843 5865 5865 5865
ExpElsty 0.49 2.37 0.37
Urban India
lnexp 0.044 0.01 0.240 0.00 0.103 0.29 −0.841 0.00 0.893 0.00 −0.133 0.00
lhsize −0.018 0.29 −0.165 0.00 −0.307 0.00 0.228 0.00 −1.002 0.00 −0.035 0.01
Observations 9139 5460 3580 19229 19229 19229
F-stat 2.02 0.01 12.34 0.00 2.73 0.00 125.93 0.00 76.16 0.00 29.59 0.00
Adjusted-R 0.533 0.48 0.630 0.384 0.340 0.439
Clusters 2900 2376 1266 3894 3894 3894
ExpElsty 0.28 1.59 0.29
Notes: Coefficients in the budget share regression are multiplied by 100 for the convenience in reporting. Total expenditure elasticity is given by ∈G+β1.
Page 18
Table 5
Price elasticity estimates for tobacco products in India
John
Rural Urban
Bidis Cigarettes Leaf tobacco Residual Bidis Cigarettes Leaf tobacco Composite
Unconstrained estimates
Bidis −0.91*** (0.046) −0.117*** (0.045) −0.010 (0.009) 0.5*** (0.042) −0.87*** (0.094) 0.011 (0.167) 0.011 (0.011) 0.52*** (0.140)
Cigarettes −0.24* (0.126) −0.41* (0.239) 0.010 (0.032) −1.845*** (0.196) −0.122 (0.113) −0.179 (0.431) −0.002 (0.021) −1.525*** (0.384)
Leaf tobacco −0.067 (0.049) 0.15* (0.078) −0.87*** (0.019) 0.411*** (0.067) 0.252** (0.126) −0.221 (0.414) −0.877*** (0.032) 0.456 (0.362)
Residual 0.0001** (0.000) 0.0001** (0.000) 0.00009*** (0.000) −0.256*** (0.000) 0.0002 (0.000) 0.002* (0.001) 0.0001*** (0.000) −0.262*** (0.001)
Symmetry-constrained estimates
Bidis −0.922*** (0.043) −0.084*** (0.029) −0.010 (0.009) 0.478*** (0.039) −0.855*** (0.084) −0.063 (0.093) 0.011 (0.010) 0.581*** (0.095)
Cigarettes −0.455* (0.147) −0.338** (0.143) 0.021 (0.032) −1.71*** (0.213) −0.091 (0.108) −0.196 (0.428) −0.003 (0.020) −1.54*** (0.386)
Leaf tobacco −0.036 (0.035) 0.022 (0.025) −0.871*** (0.018) 0.509*** (0.039) 0.071 (0.068) 0.000 (0.119) −0.874*** (0.029) 0.413*** (0.137)
Residual −0.0001*** (0.000) 0.0002*** (0.000) 0.0001*** (0.000) −0.26*** (0.000) 0.000 (0.000) 0.002** (0.001) 0.0001*** (0.000) −0.262*** (0.001)
Notes: The elasticity in row i, column j estimates the effect of a change in the price of good j on the quantity demanded of good i. Values in parentheses are the bootstrapped standard errors calculated by
making 1000 draws from the second stage data, and are defined as half the length of the interval around the bootstrapped mean, and contain 68.3% of the bootstrapped estimates. Assuming the estimates
follow a normal distribution, the coefficients with ***, ** and * imply levels of significance at 1%, 5% and 10%, respectively. Residual refers to a composite commodity that exhausts the budget.
Page 19
Table 6
Changes in consumption, expenditures and revenue from changes in taxes
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John
Unit Tax per Tax

Tax Tax Consumption Expenditure
price stick revenue
shock rate (Billion sticks) (Billion Rs.)
(Rs.) (Rs.) (Billion Rs.)
Bidis
0% 0.159 9% 0.014 1000 159.1 14.0
20% 0.162 10% 0.017 984 159.3 16.5
40% 0.165 12% 0.020 968 159.4 19.0
60% 0.167 13% 0.022 952 159.5 21.3
80% 0.170 15% 0.025 936 159.4 23.6
100% 0.173 16% 0.028 920 159.3 25.8
200% 0.187 22% 0.042 840 157.2 35.3
400% 0.215 33% 0.070 681 146.5 47.7
600% 0.243 40% 0.098 521 126.7 51.1
620% 0.246 41% 0.101 505 124.3 50.9
Cigarettes
0% 1.721 38% 0.659 108 185.0 70.9
20% 1.853 43% 0.791 105 194.8 83.2
40% 1.985 46% 0.923 103 204.0 94.9
60% 2.116 50% 1.055 100 212.6 105.9
80% 2.248 53% 1.186 98 220.6 116.4
100% 2.380 55% 1.318 96 227.9 126.2
200% 3.039 65% 1.977 84 255.3 166.1
400% 4.358 76% 3.296 60 263.6 199.3
430% 4.555 77% 3.493 57 259.5 199.0
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Health Policy Plan. 2008 May ; 23(3): 200–209. doi:10.1093/heapol/czn007.

Price Elasticity Estimates for Tobacco Products in India

© The Author 2008; all rights reserved.

Unit values and prices

3See Alderman (1988) where such an exercise is done for Pakistan.

Estimating price elasticity from unit values

Estimates from unit value and budget share regression

Estimates of own- and cross-price elasticities

Examination of cross-price elasticity from the symmetry-constrained estimates (lower panel

Effects of price changes through taxation

households dependent on tobacco-related employment, become crucial while formulating

Discussion and conclusion

Development Review. 1988; 27:89–107.

Source: Sunley (2008).

Commodity % consuming Unit values Share % consuming Unit values Share

Rural India Urban India

Items SD F-stat F-reg R-sq SD F-stat R-sq F-reg

Unit value regression Budget share regression

Bidis Cigarettes Leaf tobacco Bidis Cigarettes Leaf tobacco

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Unit Tax per Tax

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