Cigarette Consumption and Affordability in Bosnia and Herzegovina, 2010-2023 (Policy Brief)

This Policy Brief was written by University of Banja Luka, Faculty of Economics in Bosnia and Herzegovina. The policy brief assesses trends in cigarette consumption and affordability across different income groups and evaluates the effectiveness of tax and price increases in reducing consumption. The analysis shows that cigarette affordability was decreasing from 2010 to 2020, before reversing and increasing thereafter as economic growth outpaced tobacco tax increases. The long-run price and income elasticities of demand are -0.885 and 0.587, respectively. The researchers also find that a 10% decrease in affordability (measured using the relative income price) would lead to a 9.67% reduction in cigarette consumption. Given these results, increasing the specific excise tax by 37% to 44%, depending on the elasticity estimate used, would effectively reduce consumption by 10% while raising tax revenue from the specific excise by 27% to 34%. The policy brief concludes with recommendations for policy makers to significantly increase tobacco taxes to reduce affordability of cigarettes, thus reducing consumption and raising revenues. 

A corresponding Working Paper can be found here.