| Publication |
2011.
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| Summary/Abstract |
This paper investigates the price elasticity of cigarettes using an urban household survey in China. We find that cigarette price is an important determinant of smoking. In our two-part model, the overall price elasticity is - 0.82. Nevertheless, tobacco demand is influenced by both price and quality. We net out the quality effect of tobacco demand to obtain standard price elasticities, which are between - 0.70 and - 0.35. In addition, when we estimate two demand systems of Chinese households, the estimated own-price elasticities of cigarettes are - 0.57 and - 0.81. These elasticities suggest that if the tobacco excise tax rate goes up, cigarette consumption will drop rapidly, and government revenue from the tobacco tax will increase.
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