Tobacco Spending and its Crowd-Out of Other Goods

26 Pages Posted: 20 Dec 2004 Last revised: 28 Dec 2022

See all articles by Susan H. Busch

Susan H. Busch

Yale University - Department of Health Policy and Management

Mireia Jofre-Bonet

City University London - Department of Economics

Tracy A. Falba

Yale University - School of Public Health

Jody L. Sindelar

Yale University - School of Public Health

Date Written: December 2004

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.

Suggested Citation

Busch, Susan H. and Jofre-Bonet, Mireia and Falba, Tracy A. and Sindelar, Jody L., Tobacco Spending and its Crowd-Out of Other Goods (December 2004). NBER Working Paper No. w10974, Available at SSRN: https://ssrn.com/abstract=633634

Susan H. Busch

Yale University - Department of Health Policy and Management ( email )

New Haven, CT
United States

Mireia Jofre-Bonet

City University London - Department of Economics ( email )

Northampton Square
London, EC1V 0HB
United Kingdom

Tracy A. Falba

Yale University - School of Public Health ( email )

PO Box 208034
60 College Street
New Haven, CT 06520-8034
United States

Jody L. Sindelar (Contact Author)

Yale University - School of Public Health ( email )

PO Box 208034
60 College Street
New Haven, CT 06520-8034
United States
203-785-5287 (Phone)
203-785-6287 (Fax)

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