cigarette use, but the impact has generally been small and, in some cases, temporary.<sup>8</sup> Levy et al. (2012) estimate that the vast reduction in tobacco use in Brazil was mostly caused by higher tobacco prices (46 percent of the impact) and, to a lesser extent, by smoke-free policies (14 percent). The World Health Organization argues that smoke-free environments are the only way to mitigate the harmful impacts of secondhand smoking (WHO 2015b). As part of South Africa’s Tobacco Products Control Act, tobacco advertising, smoking in all indoor public areas, and the sale of tobacco to minors were all prohibited in 1999. The impact of the tobacco control interventions can be seen in the decrease in mortality rates associated with tobacco-related diseases in South Africa, such as ischemic heart disease, lung cancer, chronic obstructive pulmonary disease, and asthma (Nojilana et al. 2016; Peer et al. 2009).

Price elasticities are crucial in the design of effective tobacco taxation systems. With these, policy makers can determine the sensitivity of demand to a change in tobacco prices. Tax increases tend to generate more impact on tobacco consumption in low- and middle-income countries relative to high-income ones (WHO 2015b). There is an extensive literature estimating the relationship between tobacco prices and consumption. Chaloupka and Grossman (1996) and Lewit and Coate (1982) estimate the elasticity among the under-18 population in the United States at between −1.44 and −1.31 and, among adults ages 18 years or older, at between −0.27 and −0.42. Gallus et al. (2006) estimate a price elasticity of −0.46 for 52 countries in Europe. Cigarette price elasticities across income groups in India range from −0.83 for the lowest income group and −0.26 for the highest (Selvaraj, Srivastava, and Karan 2015). In the United Kingdom, price elasticity is estimated at −0.5 and, in Hungary, between −0.44 and −0.37 (Szilágyi 2007; Townsend, Roderick, and Cooper 1994). Denisova and Kuznetsova (2014) estimate price elasticities in Ukraine by income deciles, ranging from −0.44 for the lowest income group to −0.11 for the highest. Fuchs and Meneses (2017a) also estimate decile-level price elasticities in Ukraine and find a higher average price elasticity (−0.45), ranging from −0.33 for the richest income group and −0.59 for the poorest. Similarly, Krasovsky et al. (2002) estimate an average price elasticity of −0.24 for Ukraine, with variations by income group and age.

− − The average price elasticity of cigarettes in South Africa ranges from 0.5 to 0.87 (Boshoff 2008; Reekie 1994; van der Merwe and Annett 1998; van Walbeek 2000). Van Walbeek (1996) finds evidence of long-run − − price elasticities ranging from 0.53 to 1.52 based on data from 1970–90. Van Walbeek (2002b) estimates prices elasticities across income quartiles, controlling for income changes, and finds elasticities of −1.39 and −0.81 for the poorest and richest income quartile, respectively. These estimates are a bit above of the expected − − price elasticity for developing countries ( 0.4 and 0.8) (Chaloupka et al. 2000). None of these have relied entirely on household data to estimate price elasticities; instead, they use annual or quarterly data on aggregate tobacco prices and consumption.<sup>9</sup> Moreover, these estimates likely do not reflect the reality in South Africa because smoking prevalence has decreased significantly in the past two decades.

Age and income are two key factors in determining tobacco price elasticities. Individuals in low-income groups and young adults are more responsive to price changes relative to their peers. This makes them particularly susceptible to tobacco tax increases because they tend to be less dependent on nicotine, more affected by peer effects, and possess less disposable income (Jha and Peto 2014). Several studies in the United States have consistently shown that younger groups show higher elasticities relative to older ones (CDC 1998; Chaloupka and Grossman 1996; Lewit and Coate 1982).

# **3. Model**

> 8 Atkinson and Skegg (1973); Bardsley and Olekalns (1999); Stavrinos (1987); Sumner (1971); Townsend (1987); Townsend, Roderick, and Cooper (1994); Witt and Pass (1981).

> 9 Even though van Walbeek (2002b) uses the South African Income and Expenditure Survey to estimate tobacco price elasticities by income group, the average retail price of cigarettes is applied to all households. Thus, no distinction is made in cigarette quality or price variations by brand.

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