The demand for cigarette in Tanzania: A temporal approach

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The study presented here attempts to estimate the effect of increased price of cigarettes on the corresponding consumption in Tanzania. The study is based on household panel survey data that were conducted over three periods in 2008, 2010 and 2012. For each period price is estimated indirectly. The price increase was substantial and higher than the corresponding aggregate Consumer Price Index (CPI). An attempt is made to relate the increase in price with a possible decrease in cigarette consumption. The methods of analysis are descriptive tabular statistics and the «two-equation econometrics» approach. Over the study period, the descriptive approach showed a substantial increase in price but a modest decrease in cigarette consumption prevalence rate, intensity rate and per capita consumption. When a more robust and powerful econometric method was applied, the results showed a substantial decrease in consumption. There was a significant reduction in intensity compared to participation. Between 2008 and 2010 total price elasticity of demand decreased from -0.686 to -0.727. In 2012 the value was -1.139. The reduction in consumption was much higher among the very poor and the poor (-2.387 and -1.967 respectively). When cross classified by age group the youth (20 years or less) showed a high elasticity of -1.672. The results suggest that in a typical African country smokers (who are relatively poor) will react to substantial price increase in a predictable manner. Price elasticity of demand greater than absolute unity need not be unusual.