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Consumer demand for alcoholic beverages and tobacco in Lesotho: A double-hurdle approach

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  • Ramaele Moshoeshoe

Abstract

In this paper, we estimate income elasticities and investigate the determinants of alcohol and tobacco consumption in Lesotho using a Double-Hurdle model on the 2002/03 Lesotho HBS data. The results reveal that both alcohol and tobacco are income inelastic with estimated elasticities of 0.6553 and 0.3561, respectively. Given this, therefore, we argue that differentiated tax hikes, with a relatively higher rate on tobacco, can be more e¤ective both as a consumption deterrent and revenue increasing policy, without much compromise on employment and poverty. Further, we fi…nd evidence that alcoholic beverages and tobacco are complementaries, suggesting the need for a more holistic social policy aimed at curbing consumption of these two goods.

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Bibliographic Info

Paper provided by Economic Research Southern Africa in its series Working Papers with number 315.

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Length: 20 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:rza:wpaper:315

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Keywords: Elasticity; Excise Tax; Double-Hurdle; Lesotho;

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  1. Marc Ground & Steven F. Koch, 2007. "Hurdle Models of Alcohol and Tobacco Expenditure in South African Households," Working Papers 200703, University of Pretoria, Department of Economics.
  2. Blundell, Richard William & Meghir, Costas, 1985. "Selection Criteria for a Microeconometric Model of Labour Supply," CEPR Discussion Papers 57, C.E.P.R. Discussion Papers.
  3. Rijo John, 2006. "Crowding-out effect of tobacco expenditure and its implications on intra-household resource allocation," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2006-002, Indira Gandhi Institute of Development Research, Mumbai, India.
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  5. Madden, David, 2008. "Sample selection versus two-part models revisited: The case of female smoking and drinking," Journal of Health Economics, Elsevier, vol. 27(2), pages 300-307, March.
  6. Davide Aristei & Federico Pierali & Luca Pieroni, 2007. "Cohort, Age and Time Effects in Alcohol Consumption by Italian Households: a Double-Hurdle Approach," Quaderni del Dipartimento di Economia, Finanza e Statistica 30/2007, Università di Perugia, Dipartimento Economia, Finanza e Statistica.
  7. Young, Douglas J & Bieli´nska-Kwapisz, Agnieszka, 2002. "Alcohol Taxes and Beverage Prices," National Tax Journal, National Tax Association, vol. 55(N. 1), pages 57-73, March.
  8. Carol Newman & Maeve Henchion & Alan Matthews, 2001. "A Double-Hurdle Model of Irish Household Expenditure on Prepared Meals," Trinity Economics Papers 200119, Trinity College Dublin, Department of Economics.
  9. David Aristei & Luca Pieroni, 2008. "A double-hurdle approach to modelling tobacco consumption in Italy," Applied Economics, Taylor & Francis Journals, vol. 40(19), pages 2463-2476.
  10. Cragg, John G, 1971. "Some Statistical Models for Limited Dependent Variables with Application to the Demand for Durable Goods," Econometrica, Econometric Society, vol. 39(5), pages 829-44, September.
  11. Greer, Joel & Thorbecke, Erik, 1986. "Food Poverty Profile Applied to Kenyan Smallholders," Economic Development and Cultural Change, University of Chicago Press, vol. 35(1), pages 115-41, October.
  12. James Banks & Richard Blundell & Arthur Lewbel, 1997. "Quadratic Engel Curves And Consumer Demand," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 527-539, November.
  13. Puhani, Patrick A, 2000. " The Heckman Correction for Sample Selection and Its Critique," Journal of Economic Surveys, Wiley Blackwell, vol. 14(1), pages 53-68, February.
  14. Leung, S.F. & Yu, S., 1992. "On the Choice Between Sample Selection and Two-Part Models," RCER Working Papers 337, University of Rochester - Center for Economic Research (RCER).
  15. Jaume Garcia & Jose M. Labeaga, 1993. "A cross-section model with zeros: an application to the demand for tobacco," Economics Working Papers 26, Department of Economics and Business, Universitat Pompeu Fabra.
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Cited by:
  1. Kolawole Ogundari, 2013. "A Note on Socio-Economic Characteristics and the Demand for Beverages in Nigeria: Does Income Matter?," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 43(3), pages 293-302, December.

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