Tuesday, September 28, 2010
Japanese Smokers Buoying GDP by Hoarding Before New Tax
On October 1st, the Japanese government will increase the tax on tobacco by 40%. Smokers, as a result, are stocking up on cigarettes. The current hoarding could cause up to a 1.4% increase in this quarter's annualized economic growth rate. The Japanese tobacco industry is expecting an additional 12 billion cigarettes in aggregate demand before the tax introduction on October 1st. The supply of cigarettes has been increased 5 times above the usual amount supplied. A government's involvement in economic systems can have a drastic, large-scale impact.
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3 comments:
This is an interesting real life example of the impact of expected prices. It is something like the ex ante inflation rate where real prices and outputs are affected by consumption choices based on expectations of future prices.
Totally agree with what Becky has stated. I am sure that some of these hoarding and the 40% increase in the tobacco industry will result in the tobacco being sold in the black market.
As far as something as inelastic as tobacco and tobacco products goes, i'm not necessarily sure if the black market is something to worry about. If anything, there will people who will take their demand to countries that sell the product for cheaper and purchase it from there as opposed to buying locally. Moreover, because the product is so inelastic, I don't see the demand decreasing a whole lot after Oct 1st, but 40% is a hefty price increase.
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