Elasticities E-cigarettes

The EU Tobacco Excise Directive (June 21, 2011) responded to the growing segment of smoke-free nicotine products, such as e-cigarettes. Based on our PIVOT industry knowledge, we have used the price elasticity of demand for tobacco products to forecast prices, taxes, quantities, and tax revenues for each EU countries in 2020. In our analysis, we conclude that a risk-based approach using explicit product differentiation is the first-best solution to increase tax revenues as well as effectively protect public health.

Overview of Scenarios

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  • Purpose: To assess the economic implications of a revision of the tobacco excise directive 2011/64/EU according to different policy options.
  • Context: Smoke-free nicotine products, are beyond the scope of the EU Directive 20122/64/EU, which regulates the rates of excise duty applied to cigarettes. Various Member States have therefore pursued an independent tax policy for these products.

Consumption and Tax Revenue Forecast for the EU in 2020

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  • Method: The taxes, prices, quantities and tax revenue for each EU country in 2020 are forecast based on the price elasticity of demand for tobacco products.
  • Conclusion: The best policy option to increase tax revenue and improve public health is one which takes the risk of the product into consideration.