Reconsidering the Time-Series Approach to Estimating Cigarette Price Elasticities when Exploitation of Spatial Variation Appears Unattainable: The Case of Slovakia

Abstract

Although the current dominant trend in the literature is to analyze cigarette demand through individual consumer microdata, an aggregate country-level approach might be more preferable for countries that legislatively prohibit spatial variation in their prices. This paper, therefore, explores the idea of utilizing the cigarette tax declaration data to estimate a monthly vector error correction model of cigarette prices and volumes taxed in Slovakia for a relatively stable period of Jun 2011 – May 2023. The results are also confronted with alternative estimates using the univariate autoregressive distributed lag model framework. Despite observing volumes of cigarettes stocked by Slovak retailers, after controlling for several exogenous variables, the estimated price elasticity tends to approach magnitudes quite similar to those found in the literature investigating inelastic cigarette demand. Additionally, the paper also provides evidence for measures of tobacco control policy effectiveness regarding the cigarette tax elasticity of volumes stocked by retailers.