Impact of tobacco spending on intrahousehold resource allocation in Montenegro

Abstract

BackgroundThe main goal of this study is to estimate the crowding out impact of tobacco expenditures on the household budget allocation to other mutually exclusive commodity groups in Montenegro.MethodologyThe analysis uses the Household Budget Survey data from 2005 to 2017 to estimate a system of Engel curves using a three-stage least squares approach. As the tobacco expenditure variable is endogenous to budget shares on other consumption items, instrumental variables were included to obtain consistent estimates.ResultsOverall, the results confirm the existence of the crowding out effect of tobacco spending on various commodities, such as some food items (eg, cereals, fruits and vegetables and dairy products), clothing, housing and utilities, education and recreation while a positive effect of tobacco consumption was estimated on budget shares on bars and restaurants, alcohol, coffee and sugary drinks. These results are consistent throughout the income groups of households. The estimates indicate that an increase in tobacco expenditures leads to reduction in budget shares on essential goods, which is likely to have negative impacts on the household living standard.ConclusionsTobacco expenditure crowds out household spending on necessities, especially in case of the poorest households, thus increasing inequality, hampering human capital development and potentially causing long-term adverse effects on the households in Montenegro. Our results are similar to evidence from other low and middle-income countries. This paper contributes to the analysis of the crowding out effect of tobacco consumption, which was conducted for the first time in Montenegro.

From capacity building to collaboration in tobacco economics research

“…In addition to assessing consumer responses to price increases broadly, the studies examined differences among population groups (Huque et al, 12 Merkaj et al, 13 Shimul et al 14 ) and regional trends in the affordability of cigarettes (Zubović et al 15 ). Several papers estimated the impact of tobacco on household spending and poverty (Macías Sánchez et al, 16 Mugosa et al, 17 Swarnata et al, 18 Vladisavljevic et…”

“…In addition to assessing consumer responses to price increases broadly, the studies examined differences among population groups (Huque et al , 12 Merkaj et al , 13 Shimul et al 14 ) and regional trends in the affordability of cigarettes (Zubović et al 15 ). Several papers estimated the impact of tobacco on household spending and poverty (Macías Sánchez et al , 16 Mugosa et al , 17 Swarnata et al , 18 Vladisavljevic et al 19 ) as well as the overall burden on health care systems and economies (Gligorić et al , 20 Memon et al 21 ). Other research analyzed the macroeconomic impacts of tobacco taxes (Bella et al , 22 Cicowiez et al 23 ) and the illicit tobacco market (Divino et al , 24 Szklo et al 25 ).…”

Inequality of the crowding-out effect of tobacco expenditure in Colombia

“…Most of the literature is based on the comparison of budget shares between smokers and non-smokers in a static context [22]. While studies like Block and Webb (2009), San & Chaloupka (2016), and Mugosa et al (2023) consider several years of information, the treatment of information is still static [23,32,47]. Nyagwachi, Chelwa, and van Walbeek (2020) use a dynamic setting for identification but still, their objective is to measure the amount of crowding out in a given moment [48].…”

“…One option available for households is to use income that they previously devoted to education and health expenditures. There is evidence of this crowding-out effect that impacts human capital accumulation (food intake, education, and health) and productive household investment in Bangladesh, rural China, Costa Rica, Ghana, India, Indonesia, Kenya, Malawi, Montenegro, Pakistan, Serbia, South Africa, Turkey, Vietnam, and Zambia [20][21][22][23][24][25][26][27][28][29][30][31][32][33][34]. Yet, in middle-income countries, an alternative is to use the resources that are saved by the expansion of social policy efforts.…”

Analyzing poverty levels and welfare: Does cigarette consumption and spending on regional functions have an impact?

“…In these countries, household cigarette spending detrimentally affects welfare by diverting funds from essential needs. Interestingly, increasing taxes on cigarettes has not led to a reduction in consumption; rather, it has prompted households to cut back on necessities (Adenji, 2021;Fuchs & Icaza, 2019;Fuchs & Meneses, 2017;Mohan et al, 2018;Mugosa et al, 2023;Selvaraj et al, 2011;Toukan, 2016). Furthermore, China has experienced a notable surge in poverty rates, significantly influenced by high household expenditure on cigarettes (Hu et al, 2005).…”