Do Regulations on Smoking Limit Cigarette Demand? An Empirical Evidence from Pakistan

Enacting Ordinance No LXXIV 2002, Pakistan has developed crucial anti-tobacco policies in the last two decades. We, therefore, examine in this paper effects of both price (cigarette taxation) and non-price (public regulations on cigarette smoking) anti-tobacco policies on cigarette demand. To accomplish this objective, we examine the short and long run dynamics of cigarette demand in Pakistan using auto-regressive distributed lag (ARDL) estimator covering the period 1981-2018 (annual observations). The study compares price elasticity estimated with and without regulations on cigarette smoking. The result obtained shows that when price increases by 10%, cigarette consumption decreases by 5% in the short run while it decreases by 6.9% in the long run. This finding confirms that cigarette demand model, in Pakistan, is in-elastic. More interestingly, the study finds that non-price regulations on smoking and cigarette demand have negative and statistically significant association. This finding confirms that non-price regulations influences the long-term dynamics of cigarette smoking in Pakistan. Furthermore, we obtain low price elasticity with non-price regulations and high price elasticity without non-price regulations while estimating cigarette demand equation. This empirical result is an evident of the fact that estimated cigarette price elasticity without incorporating non-price regulations into the demand model, are upward biased. The study therefore, concludes that smoking regulation policy based on overstated cigarette price elasticity would produce ambiguous outcomes. Hence, relying only on cigarette taxation (price policy) to regulate cigarette smoking would not produce desirable outcome. In addition, university education is positively and significantly associated with cigarette consumption. This finding show that our university education do not properly convey anti-smoking message to students. To reduce cigarette smoking, Pakistan will have to implement stronger, more comprehensive and better enforced non-price regulations along with taxes on cigarettes.