The effect of tobacco prices on tobacco sales: How much will increased prices decrease sales? A time series data analysis for Norway over the period 1996 - 2015

Abstract

The national aim of Norway is to achieve a totally tobacco free future. Tobacco is available to the consumers for a price. Increasing tobacco prices (through tax) is one of the most important strategies to reduce tobacco consumption as well as sales. This research analyze the effect of tobacco prices on tobacco sales with special focus on cigarettes covering the period 1996- 2015. The most popular and common way to explore the relationship between cigarettes prices and cigarettes sales is to compute the price elasticity. The study used an annual data series of a number of key variables including border trade and sales in tax-free shops to pursue an Ordinary Least Square (OLS) method. The results reveals that a 10% increase in domestic prices leads to a reduction in sales of about 9.6%. After including border trade and tax-free sales in the analysis the effect becomes 5.8%, which reflects the smaller effect of raising domestic prices. However, the effect of increasing domestic prices are still important.