The effect of tax‐based price increases on cigarette and fermented liquor consumption: Evidence from tax reform laws in the Philippines

We evaluate the effect of the recent spate of tax reform laws on cigarette and fermented liquor consumption in the Philippines using an error correction model that utilizes regularly available national data. Since 2012, the Philippine government passed three reform measures that substantially increases cigarette and alcohol excise taxes to address the problems of smoking and noncommunicable diseases, and raises revenue for the country's national health insurance program. This paper offers a potential alternative, considering the estimation challenges stemming from the scarcity of data from individual‐ and household‐based surveys in developing countries like the Philippines. The volume of removals is used to measure consumption while the consumer price index is used to measure price changes. Quarterly national data from 2000 to 2021 yields an elasticity estimate for cigarette demand that is consistent with earlier studies that used individual‐ and household‐level data. Estimates for fermented liquors, meanwhile, offer a basis for policymaking and future studies. Overall, findings highlight the potential of using the error correction model and cointegration techniques to estimate elasticity for countries with limited data, and bolsters the argument on the effectiveness of taxes in influencing health behavior.