In this paper, we use Deaton's demand model and Household Budget Survey data from 2006 to 2017 to provide a first robust and reliable estimate of cigarettes price elasticity for Serbia. The case of Serbia is particularly interesting and important as it provides evidence for a country in which tobacco market is characterised by the high tobacco consumption, low prices and large perceived impact of multinational tobacco companies on public revenues, export and employment, given their considerable cigarette production in Serbia. The price elasticity of cigarettes is estimated at -0.639, in line with the previous estimates for the low-income and middle-income countries. Estimated negative cigarettes price elasticity for Serbia suggests that tobacco tax policy could be used effectively to reduce cigarette consumption in Serbia, which could lower the harmful health effects of cigarettes. Furthermore, a calculation based on the estimated elasticity suggests that increasing tobacco taxes could also have positive fiscal effects, as the expected revenue from the taxes would increase.
Keywords: Deaton’s model; Serbia; price elasticity; tobacco consumption.
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