Table 1 shows significant variation across deciles in cigarette prices. For instance, the poorest decile in 2015 paid an average R 6.65 for 20 cigarettes, whereas the richest decile spent R 20.14. Even though the cigarette prices obtained from the survey are lower than those shown by Statistics South Africa, they follow the same market trend for the available years (figure 1). Moreover, these differences are likely caused by the phrasing of the relevant questions in the NIDS, household recall error (Biedman 2010) and that using household expenditure on tobacco accounts for the illicit market. In addition, there is significant price variation by cigarette brand; the most expensive sold at an average price of R 39, and the cheapest at R 18.7 in 2015.<sup>17</sup> It is crucial to account for these variations to estimate tobacco price elasticities; thus, applying the same price for all households would not reflect the differences evident in table 1.

**Table 1 - Average price paid by households for a 20-cigarette pack, last 30 days (2008–15)**

||||||_De_|_ciles_||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|_Year_|_1_|_2_|_3_|_4_|_5_|_6_|_7_|_8_|_9_|_10_|Average|
|2008|3.52|4.35|4.70|4.22|4.11|5.93|4.95|7.09|9.40|10.73|6.48|
||_0.24_|_0.32_|_0.23_|_0.21_|_0.18_|_0.26_|_0.24_|_0.40_|_0.42_|_0.35_|_0.13_|
|2010/2011|3.89|4.43|4.88|5.64***|6.57***|7.24***|6.811***|11.69***|12.48***|12.48|8.66***|
||_0.17_|_0.24_|_0.40_|_0.28_|_0.55_|_0.39_|_0.40_|_0.61_|_0.52_|_0.59_|_0.21_|
|2012|7.18***|10.18***|6.97***|8.60***|9.39***|8.87***|12.05***|12.75|15.68|15.90|11.26|
||_0.27_|_0.49_|_0.24_|_0.34_|_0.41_|_0.33_|_0.50_|_0.52_|_0.60_|_0.96_|_0.20_|
|2014/2015|6.65|10.81|8.889***|10.3***|10.17|13.69***|16.41***|13.57|16.10|20.14***|13.34***|
||_0.29_|_0.39_|_0.35_|_0.45_|_0.38_|_0.59_|_0.97_|_0.48_|_0.63_|_1.19_|_0.25_|

_Source:_ Estimates based on harmonized datasets by World Bank staff of the National Income Dynamics Study, waves 1–4, 2008–15. _Note:_ Prices are in 2015 real Rand. The average excludes the bottom and top 5 percent to correct for outliers. Refer to annex B for median prices. Standard errors are reported in italics below average prices: *** reports 95% statistically different from previous year.

**Figure 1 – Average price paid by households for 20 cigarettes, by year and data source**

<!-- Start of picture text --> 40 33.0 33.0 34.1<br>31.7<br>30<br>20<br>13.3<br>11.3<br>8.7<br>6.5<br>10<br>NIDS Stats SA<br>0<br>2008 2010/11 2012 2014/15<br>Year<br>prices)<br>Price per cigarette (2015<br><!-- End of picture text --> _Source:_ Estimates based on harmonized datasets by World Bank staff of the National Income Dynamics Study, waves 1–4, 2008–15; official data of Statistics South Africa, price statistics compilation, for a pack of 20 cigarettes. _Note:_ Prices reported in 2015 real rand.

# **Tobacco price elasticity by decile**

Unlike previous tobacco price elasticity estimates on South Africa, this study uses the NIDS individual-level data sets for relevant estimates by income decile. Tobacco price elasticity estimations using national aggregate time series data on production and sales could face several problems. First, it is difficult to differentiate among the number of cigarettes sold, the number consumed, the number coming from illicit trade, or the price paid. Moreover, estimates are typically produced with a small number of observations and often lack granularity. A longitudinal panel reflecting repeated observations of individuals in both purchases and the prices paid over time for tobacco products is the ideal data set. The NIDS allows us to conduct such an analysis and control for unobserved heterogeneity among individuals for four waves from 2008 to 2015. Another advantage of using

> 17 Cigarette price data were provided by Statistics South Africa; because of data restrictions, product brands are not referenced in the analysis.

8