An Economic Analysis of Poverty and Demand for Cigarettes in Bulgaria by Özgen Saygınsoy Ayda A. Yürekli Joy A. De Beyer World Bank, Washington DC Chicago 2000

INTRODUCTION Tripled cigarette consumption since % of HHs are smokers, of which: 14% from HI group, 15% from Upper MI group, 16% from Low & Lower MI group; BUT HI and UMI HHs consume more per capita in comparison to LI& LMI HHs. –Each group consumes 1/3 of total market sales. Adult Prevalence (1995): 50% M, 25% F Youth Prevalence (1999): 40%[ HS students]

OBJECTIVE We are at the first step of a multi-step Project. Current work: Estimate price and income elasticities of cigarettes in Bulgaria, by income groups. Distribution of Sample: 42% Low and Lower-MI 32% Upper-MI 26% HI

DATA LSMS Household Survey on Bulgaria (1995). –Monthly data –Household level –Individual level by HH. World Bank & IMF cigarette tax data. Market File--price data of cigarettes by brand, length, packaging, etc.

THE MODEL Two Stage Least Squares Two Stage Least Squares: 1 st Step 1 st Step: log(PRICE) =  0 +  1 log(TAX) +  2 LENGTH +  3 PAPER +  4 log(INCOME) +  5 AGE +  6 EDUCATION +  7 ALCOHOL +  8 MALERATIO +  9 MARRPROB +  2 nd Step 2 nd Step: CONS =  0 +  1 log (PRICE) +  2 log (INCOME) +  3 AGE +  4 EDUCATION +  5 ALCOHOL+  6 MALERATIO +  7 MARRPROB + 

THE MODEL Two Stage Least Squares Two Stage Least Squares: 1 st Step 1 st Step: log(PRICE) = f ( log (TAX), LENGTH, PAPER, log(INCOME), AGE, EDUCATION, ALCOHOL, MALERATIO, MARRPROB, 2 nd Step 2 nd Step: Consumption=f ( log (Est. PRICE), log(INCOME), AGE, EDUCATION, ALCOHOL, MALERATIO, MARRPROB)

Two-Stage Least Squares Regression Results Income GroupsLow and Lower- Middle N = 948 Upper-Middle N = 721 High N = 590 Overall N = 2259 Indep. Variab.Coeff.Coeff Log(Price) Log(Income) Age EDU Alchol Con Male Marriage Probl Constant Price Elasticity Income ElasticityInsignif. 0.34

FUTURE RESEARCH Simulate the impact of changes in cigarette excise taxes on welfare, consumption and government’s cigarette-related tax revenues, Explore the distributional impact and leverage of additional tax revenues by income groups.