Price and Income Sensitivity and Stability of Cigarette Demand Amidst Economic Crisis: Evidence from Lebanon (Policy Brief)

This Policy Brief was written by American University of Beirut (AUB) in Lebanon. The Policy Brief assesses price and income elasticities of demand for cigarettes during the financial crisis. The researchers use data from a nationally representative volumetric choice experiment conducted in early 2024 with 2,500 adults. The findings show stability in cigarette demand from consumers during economic hardship, with smoking prevalence barely increasing from 35.1% in 2019 to 35.5% in 2024. The own-price elasticities for local and foreign cigarettes is estimated at -0.735 and -1.019, respectively. These estimates are not statistically different from the pre-crisis elasticity estimates of -0.639 and -1.157, respectively. Furthermore, a 10% increase in the price of local brands would increase demand for foreign brands by 2.99%, while a 10% increase in the price of foreign brands would increase demand for local brands by 1.44%. The cross-price elasticities were larger in 2024 than in 2019. Income elasticity, on the other hand, is statistically significant only for foreign brands at 0.402. The study also found that smokers over the age of 50 are more responsive to prices, potentially due to this group facing significant economic pressure from the devaluation of pensions, as well as those with an intermediate smoking history between 19 and 35 years. The brief concludes with recommendations for policy makers to shift towards a high, uniform specific tax to discourage tobacco consumption, as well as substitution between brands. 

A corresponding Report can be found here.