Price and Non-price Determinants of the Illicit Cigarette Trade: Analysis at the Subnational Level in the EU

Despite the heterogeneity of the illicit trade in cigarettes within countries, available studies mainly take national markets as their unit of analysis. The innovative contribution of this work is the focus on the phenomenon at the subnational level. Price and non-price factors are examined as determinants of the consumption of illicit cigarettes in 247 subnational areas of 28 European countries, exploiting a mixed linear model. This approach combines national and subnational data, thus accounting for the correlation among regions and explaining the important differences in the consumption of illicit cigarettes within a country. The size of the informal economy, the affordability of licit cigarettes, the rate of illicit cigarettes in the bordering regions, and the level of economic inequality emerge as the main etiological factors in the illicit cigarette trade in Europe.