EFFECTS OF PRICES BEFORE AND AFTER TAX, AND INCOME PER CAPITA ON TOBACCO CONSUMPTION IN KENYA: COINTEGRATION APPROACH

Abstract

Smoking of cigarette is regarded as one of the most cause of deaths among other factors in the world. It is also a causative agent of the various cancerous diseases. It is by fact though preventable, the major cause of cancer deaths in the entire world. Governments and stakeholders such as nongovernmental organizations worldwide have and still draining huge amount of money into institutions with an aim to fight to menace, which is associated to smoking of tobacco. The war to fight this menace is still on and the enemy is taking the lives of our beloved brilliant and potential individuals playing a significant role in developing Kenya economically. In an event that Kenya would decide to lose hope on the fight against this vice, there will be escalation with each passing year of tobacco deaths. Therefore, the general objective of the study was to find out and analyze the relation between tobacco prices both before and after tax and income per capita on tobacco consumption in Kenya. Longitudinal research design analysis approach was used covering the sampled period 1980 to 2016. The data used were extracted from economic surveys and published statistical abstracts by Kenya Bureau of Statistics. Augmented Dickey Fuller and Phillips Perron conventional unit root tests were used. From the results, the data exhibited unit root at levels but became stationary after the first difference. Zivot Andrews and Clement Montanes Reyes unit root tests were used to check if the time series variables had some major structural breaks at some time(s). There was a cointegration of -0.6868 Johansen’s cointegration equation implying that there was a deviation from long run equilibrium and this prompt the use of Vector Error Correction Model (VECM) in estimating the model. The VECM results showed tobacco prices had a negative and significant effect on tobacco use in Kenya with coefficients and their respective p-value -85.846 (0.017) and -167.655(0.000) for price of tobacco before and after tax respectively. Income per capita positively and significantly affected the tobacco smoking with coefficient of 19.353 and p- value of 0.000 less than 5 per cent significant level. The roots of companion matrix showed the model used was stable. Langrage Multipliers test confirmed that there was no autocorrelation among the independent variables. It is recommended from the findings that the government through policy formulation on tobacco pricing taxation to reduce cigarette smoking and ensure a healthy nation thus promoting productive economy in general. This also can assist government in acquisition of more revenue for their annual budgets.