The study estimated the total price elasticity of demand for cigarette and select alcohol products in the Philippines as an important input for tax policy aimed at reducing alcohol and cigarette consumption and raising much needed government revenues. The estimation was conducted by applying autoregressive error regression on the quarterly time series data of the volume of removals and retail prices of cigarettes and alcohol products in the Philippines over the period 2012 to 2021. The study supports the findings of earlier studies that cigarette consumption is price inelastic.
Price elasticity of demand for cigarettes is about -0.83, meaning that a 1% price increase could lead to a 0.83% decrease in consumption. Results for price elasticity of demand for beers is elastic at 1.48, meaning that a 1% increase in the price of beer would produce a 1.48% decrease in consumption. Furthermore, it was found that price elasticity of demand for distilled spirits appears to be unit elastic while wine is highly elastic at 1.03 and 8.51, respectively. The models developed in this study are free from problems on specifications such as serial correlation and heteroscedasticity. Policymakers may consider these results in view of future excise tax reforms.