Tobacco Spending and its Crowd-Out of Other Goods

Susan H. Busch, Mireia Jofre-Bonet, Tracy Falba and Jody L. Sindelar

No 10974, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Smoking is an expensive habit. Smoking households spend, on average, more than $1000 annually on cigarettes. For households in which some members smoke, smoking expenditures crowd-out other purchases, which may affect other household members, as well as the smoker. We empirically analyze how expenditures on tobacco crowd out consumption of other goods, estimating the patterns of substitution between tobacco products and other expenditures. We use the Consumer Expenditure Survey (1995 to 2001), which we complement with regional price data, and state cigarette prices. We estimate a consumer demand system of expenditures on cigarettes, food, alcohol, housing, apparel, transportation, medical care and controls for socio-economic variables and other sources of observable heterogeneity. Descriptive data indicate that, compared to non-smokers, smokers spend less on housing. Results from the demand system indicate that as the price of cigarettes rises, households increase the quantity of food purchased, and, in some samples, reduce the quantity of apparel and housing purchased.

JEL-codes: I1 (search for similar items in EconPapers)
Date: 2004-12
New Economics Papers: this item is included in nep-edu and nep-hea
Note: EH
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Citations: View citations in EconPapers (8)

Published as Busch, Susan H., Mireia Jofre-Bonet, Tracy A. Falba, and Jody L. Sindelar. "Burning a Hole in the Budget: Tobacco Spending and Its Crowd-Out of Other Goods." Applied Health Economics and Health Policy 3, 4 (2004): 263-72.

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