Estimating price and expenditure elasticities of demand for cigarettes, beer and soda in Uganda: evidence from eight waves of the Uganda National Panel Survey using the Deaton approach.

OBJECTIVE

To estimate the most up-to-date price and expenditure elasticities of demand for cigarettes, beer and soda in Uganda to inform the optimal design of health taxes and contribute to reducing the burden of non-communicable diseases while increasing government tax revenue.

METHODS

We used eight waves of the nationally representative Uganda National Panel Survey (2005/2006–2019/2020) and applied the Deaton demand framework, which exploited spatial price variation while correcting for quality substitution and measurement error in unit values. We adjusted the basic model for possible bias that may arise from the panel nature of the data.

RESULTS

Our results reveal that budget shares have declined with total expenditure, and quality upgrading was evident for cigarettes and beer but not for soda. Estimated own-price elasticity for cigarettes was −0.871 (95% CI −1.431 to −0.311; p=0.002). For beer and soda, the own-price elasticity was −0.362 (95% CI −4.609 to 3.885; p=0.867) and −0.153 (95% CI −2.054 to 1.746; p=0.874) and neither was statistically significant. Expenditure elasticities were positive and significant for all three commodities: cigarettes (0.460, p<0.001), beer (0.790, p<0.001) and soda (0.670, p<0.001). These findings imply that increasing excise taxes on cigarettes is likely to generate health gains through reduced consumption, whereas taxes on beer and soda may provide relatively stable revenue bases but require routine indexation to income growth to sustain the public health objective of reducing consumption.

CONCLUSIONS

In Uganda, raising excise taxes on cigarettes is strongly supported by evidence to reduce consumption and generate health gains, which is consistent with WHO recommendations. For beer and soda, while price responsiveness is statistically inconclusive, their positive and significant expenditure elasticities confirm that tax revenues will grow with income. Therefore, policymakers should prioritise immediate cigarette tax increases while routinely indexing beer and soda taxes to inflation and income growth to sustain any potential health objectives, alongside future research to refine price-elasticity estimates for these goods.