INTERPRETACIÓN DE RESULTADOS DE LA ENTREVISTA REALIZADA AL RECTOR DE LA

One of the key interests of this thesis lies in the influence of price on cigarette consumption. In the demand models of chapters 6 and 7 we would ideally want to include

16 _{There are 311/422 observations for females/males where individuals reported being a smoker in an}

earlier round but in subsequent rounds claim to have never smoked. In 778/683 cases for females and males respectively, individuals reported that they used to smoke, but in subsequent rounds they claim to have never smoked. Similarly there are 722/679 observations where individuals said they never smoked before in an earlier round, but in subsequent rounds report that they did smoke before, although they in no round reported to be a smoker (this could imply smoking briefly between surveys, rather than being an error per se).

the cigarette prices faced by each individual in our sample. In the RLMS two types of cigarette prices are available: (1) The RLMS household questionnaire features questions on the number of cigarette packs purchased in the past 7 days and the amount of roubles spent on tobacco, which allows us to calculate the average price per packet purchased; (2) the community modules provide the lowest and highest price for a packet of both a domestic and a foreign brand of cigarettes, collected by the interviewers in one store on the survey site. In addition to leading to a severe loss of sample size since about 30 percent of the values for the household tobacco expenditure variables are missing17, the first approach is also fraught with a serious conceptual drawback given the large potential for reporting error. As the expenditure data are reported by one person within the household the extent of reporting error depends on how well-informed the individual is about the purchases of other household members, both in terms of expenditure and amount purchased. While reporting error might not be so severe for goods which are typically bought in bulk for the whole household (e.g. sugar or flour), cigarettes tend to be purchased separately by each consumer and at frequent intervals, making it unlikely that one person has accurate information on the tobacco purchases of all household members.

Furthermore, even if measurement error was negligible, self-reported cigarette prices are likely to be endogenous when estimating individual-level cigarette demand (IARC, 2011). For example, all other things being equal, heavier smokers are more likely to purchase cheaper brands, to look for lower-priced stores, and to engage in tax-avoiding strategies, so that using self-reported prices will likely lead to biased (overestimated) estimates of price elasticities. Thus, in order for prices to be considered exogenous in the demand model, we need to draw on data at a higher level of aggregation where feedback from individual demand to observed price is less likely. The RLMS community-level prices could therefore be a solution; however, they have four major drawbacks. First, the use of a convenience sample consisting of one store per site to collect the prices means that, although the questionnaire instructs interviewers to choose a store where the observed families usually shop and avoid stores with substantially higher price levels, the observed prices may not be representative of the average price level of all retail outlets on the site. This problem is more acute in urban settings with a high density of retail

17 _{This concerns individuals who smoke, meaning that in each round about 30 percent of current smokers}

have either a missing value for cigarette expenditure (5-7 percent) or report zero cigarette expenditure (20- 22 percent) despite being smokers.

outlets and potentially larger price differences between stores. Second, given that the reported prices reflect the two extreme points of the price distribution (minimum and maximum), they do not provide a reliable picture of the average price level in the store and are strongly influenced by outliers at the upper end. Third, comparing of prices over time is difficult since different cigarette brands in different stores may be recorded each year. As a result, it is difficult to discern a price trend over time, with prices fluctuating erratically across rounds, in part due to variation in brand and store types. Finally, the community-level prices are incomplete for 38 out of 166 sampling sites, so that this approach would also lead to a considerable loss of sample size.18

In light of the disadvantages of the price data available in the RLMS, in this thesis we instead draw on regional cigarette prices which are publicly available via the State statistical agency Rosstat.19 Rosstat provides the average, nominal price per pack for unfiltered domestic cigarettes, as well as domestic and foreign filter cigarettes for each of the 83 subjects of the Russian Federation (commonly referred to as ‘regions’). Since filtered cigarettes are the predominant type of tobacco product consumed, occupying 94.8 percent of the market in 2010 (Korolev, 2011), we compiled the prices for filtered domestic and foreign brands of cigarettes and merged them into the RLMS dataset.2021 The reason for distinguishing between domestic and foreign (in both the RLMS and Rosstat price data) is that domestic cigarette brands are typically in the low and mid-price segment whereas foreign brands fall predominantly into the premium price segment. Therefore, combining domestic and foreign brands into one average price would provide an upward-biased measure of the average price level. To obtain real prices, the nominal Rosstat prices were deflated using the inflation index provided by the RLMS. As noted in chapter 1, real cigarette prices have been increasing since 2008 as a result of the adoption of a new tax regime and several tax increases. The increases, for prices within

18 _{In theory, it would be possible to recover the missing prices by taking one site for which prices are}

complete in all rounds within each primary sampling unit (PSU), and assume these prices hold for all of the sites within the PSU. This approach presupposes that prices across sites within one PSU are relatively similar so that the prices for one site provide a reasonable proxy of the price level in sites where prices are missing. This might be problematic, however, if prices vary depending on the size of a settlement, for example, prices in cities.

19 _{See http://www.fedstat.ru/indicators/start.do.}

20 _{Regional cigarette prices are only provided from the year 2003 onwards. However, the corresponding}

price indices are reported starting in 2002, which allows prices for 2001 and 2002 to be obtained via backward calculation.

21 _{The RLMS is conducted in 38 of the 83 subjects of the Russian Federation (corresponding to the}

number of PSUs). That is, while the RLMS community prices are measured for each of the 166 sites (SSUs), the Rosstat prices are measured at a higher level of aggregation and correspond to the 38 PSUs.

our sample regions, are confirmed in Figure 2.2 and Figure 2.3 below. Since the price rises were mainly due to increases in the specific excise tax, the increases were larger for the domestic (usually cheaper) brands relative to the foreign ones.

Figure 2.2 Real price of domestic cigarette brands

For domestic cigarettes, the price level is relatively similar across regions, with real prices being highest in Moscow and St. Petersburg. Both the decline in real prices between 2001 and 2007 and the subsequent increases from 2008 are more pronounced outside of Moscow and St. Petersburg. Foreign cigarettes show larger price variations across regions and diverging trends over time, with a particularly strong fall between 2001 and 2007 in Moscow and St. Petersburg, as well as in the North & North Western and Western Siberian regions. In the North Caucasian region by contrast, real prices rose steeply from 2005 onwards. Since 2008, prices seem to be on the rise in all regions, albeit this is not as pronounced as for domestic cigarettes.22

Figure 2.4 Real price of domestic brands by region

22 _{The trends by region are based on subjects of the Russian Federation where the RLMS is actually}

conducted. For example, the North Caucasus data includes Krasnodarskij Kraj, but not Ingushetia or Dagestan.

Given that the Rosstat prices report the average price level within one region (i.e. subject) of the Russian Federation, while the RLMS prices measure the range of cigarette prices in one shop on the survey site, a direct comparison of the prices is impossible. However, one way to see whether the Rosstat prices correspond to the prices within the smaller geographical units of the survey sites is to check whether the Rosstat average falls within the price range indicated by the RLMS, see Table 2.8 below. For 11 percent of observations, the Rosstat price for domestic cigarettes is lower than the lowest price recorded in the RLMS. This concerns predominantly rural settlements in the North Caucasian and Central Black-Earth regions and might indicate that the Rosstat prices underestimate the price level in rural regions. At the upper end of the price range for domestic cigarettes, 7 percent of the Rosstat prices exceed the highest price recorded in the RLMS, again mostly in rural areas.23 For foreign cigarette brands, 24 percent of Rosstat prices are lower than the lowest price in the RLMS, while 12 percent of prices fall outside the upper limit of the RLMS price range. Thus, 18 (36) percent of Rosstat

23 _{The concentration of discrepancies in rural areas is in line with the fact that the Household Budget}

Surveys that form the basis for the price data reported by Rosstat are only collected in urban areas, so that for rural survey sites our price measures are likely to be underestimated.

Figure 2.5 Real price of foreign brands by region

prices for domestic (foreign) cigarettes are outside the range of observed RLMS community-level prices, with two-thirds of the discrepancies at the low end, which suggests that, if anything, for this sample the Rosstat prices are biased downwards compared to the RLMS prices and with less variation given the more aggregated nature of the regional prices. In our empirical analyses, we therefore interpret the impact of price on cigarette consumption as reflective of lower bound estimates.

Table 2.8 Comparison of Rosstat and RLMS cigarette prices

Rosstat prices outside RLMS price range Difference in %

Domestic cigarette brands

Rosstat < RLMS low price 10.85

Rosstat more than 10% < RLMS low price 8.61

Rosstat > RLMS high price 7.16

Foreign cigarette brands

Rosstat < RLMS low price 23.97

Rosstat more than 10% < RLMS low price 23.10

Rosstat > RLMS high price 12.43

Rosstat prices within RLMS price range

Domestic cigarette brands

Rosstat more than 100% < RLMS high price 61.02 Rosstat more than 1000% < RLMS high price 1.43

Foreign cigarette brands

Rosstat more than 100% < RLMS high price 44.97

Comparison of Rosstat and RLMS average prices

Domestic cigarette brands

Rosstat < RLMS average price 81.23 Rosstat more than 10% < RLMS average price 76.21

Foreign cigarette brands

Rosstat > RLMS average price 18.70 Rosstat more than 10% > RLMS average price 12.65 Based on the pooled representative sample for 2001-2010

As concerns the distribution of Rosstat prices that fall within the RLMS price range, for about 60 percent of the sample the highest price for domestic cigarettes is more than twice the Rosstat price, which is what we would expect to see given that domestic brands tend to fall in the lower part of the price distribution. Accordingly, the average RLMS price calculated based on the minimum and maximum prices also exceeds the Rosstat price for the majority of sites (81 percent). For imported cigarettes the differences are less pronounced, with 45 percent of the high RLMS prices exceeding the Rosstat price by more than a factor of 2, which is also in line with the idea that foreign brands typically serve the medium and premium price segments of the market.

2.4 C

In this chapter we introduced the RLMS as the major source of data for this thesis. In the first section we discussed the sampling strategy and different samples of the RLMS, and examined in more detail response patterns and attrition from the longitudinal element of the RLMS. In spite of the obvious problems with conducting a good panel survey in a country like Russia, the RLMS provides one of the few household panel surveys in the world for a middle income country and given its longevity and reputation it is now one of the established core resources of the CNEF. Furthermore, notwithstanding the necessarily more complicated design features of the survey, the patterns of attrition in the RLMS are in line with comparator surveys, other things being equal. In the second section we have shown that the survey provides a very rich dataset on smoking which so far has been relatively under-used in addressing the important issue of smoking in Russia. Since a key interest of the thesis lies in the effect of cigarette prices on consumption and in light of the problematic nature of the cigarette prices collected by the RLMS, a small but important contribution of the thesis is to merge the regional price data provided by Rosstat with the RLMS data. But before turning to the econometric demand analyses in the third part of the thesis, the next two chapters provide an important descriptive analysis of smoking patterns in Russia, in terms of both longer-term developments that cover the Soviet and post-Soviet period, and in terms of a detailed examination of smoking patterns in the first decade of the 2000s.

3 Life-course smoking patterns and the