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Tobacco Spending and its Crowd-Out of Other Goods


  • Susan H. Busch
  • Mireia Jofre-Bonet
  • Tracy A. Falba
  • Jody L. Sindelar


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

  • Susan H. Busch & Mireia Jofre-Bonet & Tracy A. Falba & Jody L. Sindelar, 2004. "Tobacco Spending and its Crowd-Out of Other Goods," NBER Working Papers 10974, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:10974
    Note: HE

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    References listed on IDEAS

    1. Chaloupka, Frank J. & Warner, Kenneth E., 2000. "The economics of smoking," Handbook of Health Economics,in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 29, pages 1539-1627 Elsevier.
    2. Sandra L. Decker & Amy Ellen Schwartz, 2000. "Cigarettes and Alcohol: Substitutes or Complements?," NBER Working Papers 7535, National Bureau of Economic Research, Inc.
    3. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, May.
    4. Lisa Barrow & Leslie McGranahan, 1999. "The earned income credit and durable goods purchase," Working Paper Series WP-99-24, Federal Reserve Bank of Chicago.
    5. Jones, Andrew M, 1989. "A Systems Approach to the Demand for Alcohol and Tobacco," Bulletin of Economic Research, Wiley Blackwell, vol. 41(2), pages 85-105, April.
    6. Nicholas S. Souleles, 1999. "The Response of Household Consumption to Income Tax Refunds," American Economic Review, American Economic Association, vol. 89(4), pages 947-958, September.
    7. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-326, June.
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    Cited by:

    1. Xiaohua Yu & David Abler, 2010. "Interactions between cigarette and alcohol consumption in rural China," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 11(2), pages 151-160, April.
    2. Steven Block & Patrick Webb, 2009. "Up in Smoke: Tobacco Use, Expenditure on Food, and Child Malnutrition in Developing Countries," Economic Development and Cultural Change, University of Chicago Press, vol. 58(1), pages 1-23, October.
    3. Rijo M John, 2005. "Price Elasticity Estimates for Tobacco and Other Addictive Goods in India," Microeconomics Working Papers 22395, East Asian Bureau of Economic Research.
    4. Rijo M John, 2006. "Crowding-out Effect of Tobacco Expenditure And Its Implications on Intra-Household Resource Allocation," Microeconomics Working Papers 22396, East Asian Bureau of Economic Research.
    5. Pu, Cheng-yun & Lan, Virginia & Chou, Yiing-Jenq & Lan, Chung-fu, 2008. "The crowding-out effects of tobacco and alcohol where expenditure shares are low: Analyzing expenditure data for Taiwan," Social Science & Medicine, Elsevier, vol. 66(9), pages 1979-1989, May.

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    JEL classification:

    • I1 - Health, Education, and Welfare - - Health

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