The Economics of Smoking in Russia: Evidence from the Russia Longitudinal Monitoring Survey (RLMS-HSE) Diana Quirmbach A thesis submitted for the degree of Doctor of Philosophy of the University College London October 2015 School of Slavonic and East European Studies University College London (UCL) 2 Word Template by Friedman & Morgan 2014 Morgan & Friedman by Word Template Declaration of Authorship I, Diana Quirmbach, confirm that the work presented in this thesis is my own. Where information has been derived from other sources, I confirm that this has been indicated in the thesis. Signed:______________________________________________________________ Date:_________________________________________________________________ 3 Word Template by Friedman & Morgan 2014 Morgan & Friedman by Word Template Summary / Abstract This thesis contributes to our understanding of tobacco consumption, one of the leading causes of premature mortality in Russia. While smoking has received less attention in the literature compared to hazardous alcohol consumption in Russia, it is increasingly the focus of government policy, as illustrated by a restrictive anti-smoking law which was passed in 2013 and which, among other things, foresees substantial tax increases, some of which have already been introduced. The few studies examining price responsiveness of smoking in Russia have identified very low price elasticities compared to those found for other countries, thus calling into question the effectiveness of tax increases as a means of reducing consumption. In this thesis we draw on 10 years of individual-level longitudinal data from the Russia Longitudinal Monitoring Survey (RLMS-HSE) and regional-level government statistics to examine the longer-term development of smoking patterns in Russia and to model the demand for cigarettes. After setting out the context of smoking in Soviet and post-Soviet Russia, which in both periods is characterised by high affordability and easy availability of cigarettes, coupled with only minimal tobacco control measures, the second part of the thesis examines patterns of smoking across the life-course over the past 6 decades and establishes some stylised descriptive facts regarding the associations of smoking with important socioeconomic and geographic characteristics. Building on this descriptive evidence, we develop an empirical model of cigarette demand in Russia, starting with a static model capturing the influence of factors such as price, income or education on consumption, and then moving to a dynamic specification that additionally accounts for the habit-forming effects of cigarette consumption. We find that price elasticities are small, but meaningful, that social factors and peer effects are more significant drivers of smoking and that smoking is strongly persistent within individuals. A key theme emerging from both the descriptive and econometric analyses is the strongly gendered nature of consumption patterns, which suggests that to successfully reduce the prevalence of smoking, policy measures should take into account the different gender norms towards smoking. 4 Word Template by Friedman & Morgan 2014 Morgan & Friedman by Word Template Acknowledgements Completing this thesis has been a rollercoaster, with many ups and downs, and certainly also moments where I felt like I was going to fall off. My greatest debt is to my supervisor, Professor Christopher J Gerry, who made sure I did not fall and stayed the distance. Thank you for being both supervisor and friend, for giving me the freedom to go down rabbit holes and at the same time pulling me out of them when necessary. Your patience and encouraging words helped me see through the fog, giving me the skills and confidence to master the econometric work. I consider myself fortunate to work with someone who set such a great example for me both as a researcher and a teacher. I would also like to thank my examiners, Professor David Leon and Professor Matt Sutton, for making what could have been a stressful experience into one of the most rewarding moments of the last four years. I am especially grateful for the positive feedback and the constructive suggestions for developing this work further. I was lucky enough to secure an academic position before I completed my PhD. Since September 2014 I have been working as a fellow in health economics in the Department of Social Policy at the London School of Economics and Political Science. I am indebted to many of my departmental colleagues for providing very useful comments on my work, particularly the members of the health and social care reading group for their suggestions regarding the econometric analyses. I am deeply thankful to my corridor neighbours Dr Michael Shiner and Dr Jeroen Luyten, for their professional guidance, and more importantly, the daily tea and sympathy. You helped me stay sane in the final stretch. I would not have been able to carry out the research without the generous financial support provided by the Economic and Social Research Council and the Stiftung der deutschen Wirtschaft. Last but by no means least, I am immensely grateful to my family and friends who have kept me going throughout the four years; to my parents and grandmother for their unwavering support and trust in my decisions; to my friends Anabel, Jenni, Karo, Nadine, Nicole, Sarah, and Susanne for providing motivational music playlists and emotional first aid; and finally to Diego for cheering me up and calming me down, and for being simply awesome. 5 Word Template by Friedman & Morgan 2014 Morgan & Friedman by Word Template 6 Word Template by Friedman & Morgan 2014 Morgan & Friedman by Word Template Contents INTRODUCTION ......................................................................................................... 20 1 THE CONTEXT OF SMOKING IN SOVIET AND POST-SOVIET RUSSIA .. 26 1.1 INTRODUCTION ....................................................................................................... 26 1.2 THE RUSSIAN HEALTH CRISIS OVER THE PAST 5 DECADES ...................................... 28 1.2.1 Health consequences of smoking ................................................................... 30 1.2.2 Economic consequences of smoking .............................................................. 34 1.3 THE RUSSIAN TOBACCO MARKET AND CIGARETTE PRICES ...................................... 36 1.3.1 Anti-smoking legislation in Russia ................................................................. 41 1.4 CONCLUSION .......................................................................................................... 47 2 THE DATA ................................................................................................................. 50 2.1 THE RUSSIA LONGITUDINAL MONITORING SURVEY ............................................... 50 2.1.1 Introduction .................................................................................................... 50 2.1.2 Sampling strategy ........................................................................................... 51 2.1.3 Response patterns and attrition in the different samples ............................... 54 2.1.4 Descriptive statistics of the samples .............................................................. 61 2.2 RLMS DATA ON SMOKING ...................................................................................... 65 2.2.1 Missing data on smoking ................................................................................ 66 2.2.2 Inconsistent reporting of smoking status across rounds ................................ 67 2.3 REGIONAL CIGARETTE PRICE DATA ........................................................................ 67 2.4 CONCLUSION .......................................................................................................... 74 3 LIFE-COURSE SMOKING PATTERNS AND THE EVOLUTION OF SMOKING OVER TIME ............................................................................................. 75 3.1 INTRODUCTION ....................................................................................................... 75 3.2 EMPIRICAL EVIDENCE ON SMOKING PATTERNS IN SOVIET AND POST-SOVIET RUSSIA ..................................................................................................................................... 76 3.3 DATA AND EMPIRICAL APPROACH .......................................................................... 80 3.3.1 Construction of life-course smoking data ...................................................... 81 3.4 RESULTS ................................................................................................................. 84 3.5 DISCUSSION ............................................................................................................ 87 3.6 CONCLUSION .......................................................................................................... 90 CHAPTER 3 APPENDICES .............................................................................................. 91 4 RLMS EVIDENCE ON SMOKING PATTERNS BETWEEN 2001 AND 2010 . 94 7 Word Template by Friedman & Morgan 2014 Morgan & Friedman by Word Template 4.1 INTRODUCTION ....................................................................................................... 94 4.2 RLMS EVIDENCE ON SMOKING BETWEEN 2001 AND 2010 ..................................... 95 4.2.1 Smoking prevalence by age ............................................................................ 95 4.2.2 Ever-smoking