The Impact of Sin Tax on the Consumer’s Demand for Cigarettes

Topics: Supply and demand, Tax, Consumer theory Pages: 5 (1207 words) Published: December 13, 2011
Marlene B. Escamillan


The impact of sin tax on the consumer’s demand for cigarettes


The raise in tax is one of the most valuable gauges to lessen the utilization of a good. Just the same as other taxes, a sin tax is charged to lift up proceeds for government expenditures. Different from other taxes, a sin tax is often imposed with an intention of reducing the public’s consumption of a good. On the other hand, when you articulate about taxing cigars and alcoholic beverages, consumption emerge to be unpredictable especially to the mass.

The policymakers’ main concern is that an increase in cigars and alcoholic beverages taxes could have an inconsistent impact on the underprivileged (Jose Julian Escario, Jose Alberto Molina, 2004). Escario, et al. also found that the increase in the actual worth of taxation on cigarettes has had slight effect on demand from smokers for the reason that demand has been inelastic. But there are signs that a tipping point may have been reached. Sin taxes are also the most effective way to influence adolescent people to refrain from smoking. On the other hand, an increase in the price on cigarettes has had slight effect on demand from smokers since demand has been inelastic. Thus, what really is the elasticity of the demand for cigarettes to the mass? The purpose of this paper is to stimulate the impact of sin tax on the consumption of cigarettes of regular smokers.

Point of view

From an economic perspective, the researcher finds it more sensible to consume the standard cigarette because of the satisfaction it yields to the consumers. It is also efficient for the societal well being of the country because the tax charged will still be returned to us eventually. In addition, based from the study, the researcher would rather utilize the standard good at a lesser demand rate rather than substituting the good in view of the fact that substituting the good would not be as satisfying from what you have been used to smoke. If the taxing of cigarettes will be put into practice, there is an option for smokers to trim down their consumption.


50 surveys were dispersed randomly to gather the data needed for prices, and demand for cigarettes. The survey was developed by the researcher. The prices of the usual brand, the substitute brand, and the demand for cigarettes were all answered in the form of a probit model.

The price of the standard cigarette brand, and quantity demanded of the substitute cigarette brand are the explanatory variables, while demand for the standard cigarettes is the exogenous variable. Allowance was employed to determine on which income group the student belongs to. Prices were varied through its increase due to tax implemented. Meanwhile, the demand for cigarettes was gauged by the quantity consumed by the buyers.

Equation 1:

QDstandard = [pic] + [pic] Pstandard + [pic]QDsub + e

The regression model is made known above. QDstandard stands for the quantity demanded for the standard cigarette brand; Pstandard corresponds to the price of the standard cigarette brand with tax implemented; QdSub embodies the quantity demanded of the substitute good which is inexpensive than the other good.


Regression results of QDstandard on Pstandard, and QDsub

|Dependent Variable: QDstandard | |Included observations: 50 | |Variable |Coefficient |Std. Error |t-Statistic |Prob. | |C |13.66452 |0.595734 |22.93727 |0.0000 | |Pstandard |-0.176294 |0.066267 |2.660363 |0.0145 | |QdSub |-0.126506 |0.043445 |-2.911854 |0.0086...
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