Consumption function and price elasticity of tobacco demand in Nigeria

Abstract

INTRODUCTION Tobacco consumption remains a major threat to population and public health globally. In response, an increase in the taxes levied on tobacco products has been found to be an effective intervention for controlling their use. In Nigeria, studies assessing the impact of excise taxes on tobacco use are less advanced. As such, this study evaluated the consumption function and price elasticity of tobacco demand in Nigeria. METHODS This study used cross-section data from the Harmonized Nigerian Living Standard Survey (HNLSS, 2009–2010). Quadratic Almost Demand System (QUAIDS) of tobacco budget share and unit value equations were specified. Within and between cluster variation in prices and quantities demanded were used to determine the price elasticity of tobacco demand. RESULTS Household size, food price index, level of education/literacy of household head and income were significant determinants of tobacco consumption. Also, rural and urban price elasticities of tobacco demand were -0.63 and -0.49 while the national price elasticity of tobacco demand was -0.62. CONCLUSIONS The results of this study show that for every 5% increase in the price of tobacco, there will be a corresponding reduction of about 3% in the quantity of tobacco demanded in the national and rural samples. While the same increase in the price of tobacco products will generate about 2% reduction in quantity of tobacco consumed in urban settings in Nigeria. This finding is consistent with earlier studies in low-and-middle income countries