Tax policy and tobacco consumption in Botswana: an ARDL-EC approach

Purpose Botswana imposed a 30% ad valorem tobacco tax in 2014 to reduce tobacco use. The purpose of the paper is to assess the effectiveness of the tax in curtailing tobacco consumption. Design/methodology/approach An autoregressive distributed lag and equilibrium correction (ARDL-EC) framework is applied on data for the period 1975–2020 to estimate a dynamic tobacco demand model. The estimated price elasticity is then used to quantify the effects of the tax on tobacco consumption. Findings A 10% rise in the tobacco price results in a 6.6% decrease in tobacco consumption, suggesting an inelastic response. A 10% rise in income yields a 12% increase in tobacco consumption, reflecting that the rapid economic growth Botswana experienced post-independence yielded increased tobacco use. Tobacco consumption declined by 3.6% per year, possibly capturing the effects of increasing awareness of the adverse effects of tobacco use over time. The 30% tobacco tax yielded a 20% reduction in tobacco consumption, suggesting moderate effectiveness in curtailing consumption. The tax reduced annual tobacco consumption by 100 grams per capita or 151 metric tons nationally. Research limitations/implications Future research could explore the effects of non-price anti-tobacco measures and socioeconomic and demographic factors on tobacco use to provide further insights for guiding the development of targeted anti-smoking interventions. Originality/value Tobacco demand elasticities vary across countries and analytical methods. Therefore, country-specific empirical evidence is essential for policymaking. An existing study in Botswana employed cross-sectional analysis, which does not capture the addictive effects of tobacco. The ARDL-EC framework is employed to close this gap. Simulated effects of the tax are useful for policy reform in Botswana. Peer review The peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-01-2024-0097