Tobacco Tax Pass-Through in Montenegro [Working Paper Series]

This Working Paper was written by the Institute for Socio-Economic Analysis (ISEA) in Montenegro. The working paper aims to estimate the pass-through effect of tobacco taxes to improve understanding of tobacco industry pricing strategies. The researchers find that the industry employs different strategies on different price segments. Specifically, under-shifting is found with cheaper cigarettes. Slim cigarettes, especially, are priced below other cigarette types, and tax increases are not fully passed through to their consumers. As a result, they remain affordable and easily accessible. Over-shifting is utilized largely with premium brands. These varying strategies allow the industry to maintain the wide price gap between cheaper and premium products, while generating a large profit. The working paper demonstrates the importance of assessing industry pricing strategies when developing tobacco tax policies. 

A Policy Brief based on this working paper can be found here.