Few studies attempt to obtain elasticity estimates across income groups. On Bangladesh, Nargis et al. (2014) estimate total price elasticities of demand using data from wave 1 (2009) and wave 2 (2010) of the International Tobacco Control Bangladesh Survey. They find that the price elasticity of cigarette − consumption is higher among people of lower socioeconomic status based on a housing index ( 0.75 − − for the poorest group, 0.40 for the medium group, and 0.36 for the richest group). A similar pattern is found in India and South Africa.

In countries with a variety of tobacco products, the impact of changes in cigarette prices also depends on the potential substitution by other tobacco products. In the case of Bangladesh, it may be important to assess the potential substitution of bidis, which are also smoked, are significantly cheaper, and are widely consumed by the poor. Anecdotal evidence and cultural features suggest that, once a person starts smoking cigarettes, they will not go back to consuming bidis. Although this may be true among the large majority, there is limited evidence of the extent of this substitution across consumption deciles, particularly among extreme poor households. To complement the existing price elasticity estimates, price elasticities for cigarettes and other tobacco products across consumption deciles are estimated using the HIES 2016/17. Specifically, a system of demands is estimated using a quadratic almost ideal demand system (AIDS) (Banks, Blundell, and Lewbel 1997; Deaton and Muellbauer 1980; Mas-Colell, Whinston, and Green 1995). For tractability, the focus is on estimating a set of demands for five tobacco products (cigarettes, bidis, betel leaf, betel nut, and rolled betel leaf). A few products that are consumed by fewer than 4 percent of households are not included (tobacco leaf, gul, and other smoked tobacco, khoer, lime, and other smokeless products). The models incorporate a set of demographic controls, as well as a control for urban and rural location.

To estimate the demand system and the price elasticities, one needs information about the prices of the various tobacco products. However, disaggregated data on prices to estimate the elasticities are not available. The HIES 2016/17 unit values obtained by dividing the total values reported by quantities may be used to infer information about prices. As Deaton (1997) points out, unit values not only capture information about prices, but are also affected by household choices on quality. In addition, unit values are measured with errors because they involve a calculation based on a ratio between values and quantities. Partially to address this concern, median values are calculated for the unit values across districts separated by urban and rural areas. This exploits the fact that the survey is representative across districts and provides a reasonable number of observations to calculate the median values.<sup>13</sup> − The quadratic AIDS estimates indicate that the price elasticity for cigarettes is 1.3. Comparing across deciles, one finds, similar to previous research results, that the elasticities are larger among the poorest − − ( 1.36 for the first decile and 1.23 for the richest deciles). The average price elasticity for bidis is − 1.22, and there is not a clear gradient across deciles.

> 13 In the cases where the number of observations was less than 30, the medians of the full districts are used.

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