The Analysis of the Tobacco Product Bans Using a Random Coefficients Logit Model

Abstract

The studies of tobacco demand accounting for product diversity have
attracted much attention in the literature, but the ex ante measurements of
the effects of product bans are relatively scarce. This paper aims to fill this gap
and considers the 2020 EU-induced ban on menthol cigarettes as an example,
focusing on the Polish market. In the proposed approach, a 2004-2017 productlevel dataset for Poland is used to estimate a random coefficients logit model
and simulate the effects of the menthol ban and, for comparison, a cigarette
excise hike. The dataset is unique as it encompassess substantial changes in
the tobacco tax level and structure that took place in Poland over the sample
period. The simulations suggest that the ban, despite switching of consumers
towards non-menthol cigarettes, results in relatively strong reduction in demand
for duty-paid cigarettes, stronger than in the case of the excise hike.