BACKGROUND: The increase in cigarettes’ affordability in the last years in Bosnia and Herzegovina has probably contributed to higher smoking rates, as economic growth and disposable income have outpaced tobacco tax increases. Regardless of the efforts made until 2019 to reduce consumption through increased tobacco excise taxes, cigarette prices remain low, particularly compared to the European Union. The post-COVID-19 economic shifts, including a significant rise in GDP and inflation with minimal cigarette price increases, further highlight the need for stronger tobacco control measures, addressing both price and income dynamics.
METHODS: This study applies quarterly macroeconomic data from 2010 to 2023 to examine cigarette consumption and affordability in Bosnia and Herzegovina. Employing Time Series Analysis on macro data, the research assesses the impact of key affordability indicators on cigarette consumption across different income groups. The current analysis, with the estimates of price, income, and affordability elasticity, aims to evaluate the effectiveness of tax and price increases in curbing cigarette consumption.
RESULTS: The analysis of affordability trends reveals a downward trend up until 2020, followed by a reversal in direction thereafter. A ten percent increase in income leads to an increase in cigarette consumption by 5.87 percent, while a ten percent increase in price and relative income price decreases cigarette consumption by 8.85 and 9.67 percent, respectively. To reduce consumption by 10 percent, an increase in the specific excise tax by 37 to 44 percent is needed, which would raise tax revenue from the specific excise by 27 to 34 percent.
CONCLUSIONS: Since there was no increase in specific excise for five years, while in the same period CPI and GDP growth were high, substantial increase in excise taxes and changes in tobacco control policies is necessary for reduction in affordability and thus reduction of demand for cigarettes.