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Consumption Curtailing or Brand Switching? Exploring the Adaptation Strategy of Tobacco Smokers in the face of Taxation in Sylhet Metropolitan Area

Corresponding Author : Monir Uddin Ahmed (monir-eco@sust.edu)

Authors : Monir Uddin Ahmed (monir-eco@sust.edu), Amit Roy (amit-eco@sust.edu)

Keywords : Cigarette Smoking, Brand Switching, Tobacco Tax

Abstract :

This study estimates the effect of tobacco taxes on cigarette consumption in the Sylhet Metropolitan Area given the smokers’ choice set of either reducing the quantity of cigarette consumption or sacrificing quality of tastes by switching into low price cigarette brands or both. To examine these preferences, we contemplate three different scenarios of consumer responses. Imprimis, we investigate whether the association between cigarette consumption curtailing decision and brand switching behaviour are simultaneous or sequential when facing a tax hike on the product. Next, we distinguish between consumer choices in two different sequential stages. To do so empirically, we design an urban sample survey to collect data from Sylhet Metropolitan Area and then employ the collected and refined dataset to econometrically estimate the consumer reactions. Our result suggests that imposition of taxes impetus consumption reduction for consumers who makes choice between consumption curtailing and brand switching independently. In contrast, we find no statistically significant evidence of tobacco taxes on cigarette consumption in cases of sequentially decision-making smokers. Overall, our sample selection model suggests that post tax price had no statistically significant effect to cut cigarette consumption in simultaneous case also. Moreover, using multinomial logit model, we find that marital status, employment, non-tobacco expenditure and brand loyalty have significant effect on the two-stage decision process in cigarette consumption. We suggest that social awareness rather than increase in tax could play an important role to contain the consumption of this harmful but relief-feeling commodity.

Published on December 30th, 2021 in Vol 32, No 2, 2021 (Special Issue on Bangladesh Development Perspectives : Issues of Economic Justic, Social Sciences