Estimation of integrated price elasticities for alcohol and tobacco in the United Kingdom using the living costs and food survey 2006–2017

Abstract

AbstractIntroductionEvidence shows that price is an important policy lever in reducing consumption of alcohol and tobacco. However, there is little evidence of the cross‐price effect between alcohol and tobacco.MethodsThis paper uses an econometric model which estimates participation and consumption elasticities, on data from the UK Living Costs and Food Survey 2006–2017 and extends the literature by, for the first time, estimating joint price elasticities for disaggregated alcohol and tobacco products. This paper presents new price elasticities and compares them to the existing literature.ResultsThe own‐price elasticity estimates are all negative for both participation and consumption. There is no pattern to the estimates of cross‐price elasticities. The elasticity estimates, when used in the Sheffield Tobacco and Alcohol Policy Model, produce bigger changes in consumption for the same change in price compared to other elasticity estimates in the existing literature.Discussion and ConclusionsConsumption of alcohol and tobacco are affected by the prices of one another. Policymakers should bear this in mind when devising alcohol or tobacco pricing policies.