Crowding-out effect of tobacco consumption in Serbia

Abstract

Background: Although smoking prevalence and intensity in Serbia have decreased in recent years, expenditures on tobacco products still represent a significant portion of household budgets. As households have limited resources at their disposal, consuming tobacco means that they spend less on other items such as food, clothing, education and healthcare. This is particularly true for low-income households, for whom the pressure on the household budget is even higher.

Objectives: In this research we estimate the effect of tobacco consumption on other consumption items in Serbia, which is the first estimation of this type for the countries in Eastern Europe.

Methods: We use microdata from the Household Budget Survey and estimation approach that includes the combination of seemingly unrelated regression and instrumental variables. Besides estimating the overall effect we analyse the differences in effects between low-income, medium-income and high-income households.

Results: Expenditures on tobacco reduce consumption on food, clothing and education and increase the budget shares spent on complementary consumption items such as alcohol, hotels, bars and restaurants. In most cases, the effects are more pronounced for low-income households than for other groups. These results suggest that aside from the negative effects of tobacco consumption on health, it also distorts household consumption structure, while affecting intrahousehold allocation and future health and development of other household members.

Conclusions: The results from this research underline the negative effect that tobacco expenditures have on consumption of other products. The only way for households to decrease expenditures on tobacco is to stop smoking, as the consumption of those who continue smoking changes less than cigarettes prices. To ensure that households stop smoking and instead direct their expenditures towards more productive purposes, the Serbian government should adopt new policies and strengthen enforcement of existing tobacco control measures.

Keywords: economics; low/middle income country; socioeconomic status; taxation.