Crowding-out effect of tobacco consumption in Indonesia

Abstract

BackgroundTobacco consumption is pervasive in Indonesia, with 6 out of 10 households in the country consuming tobacco. Smoking households, on average, divert a significant share (10.7%) of their monthly budget on tobacco products, which is higher than spending on staples, meat or vegetables. Nevertheless, evidence of the causal link between tobacco expenditure and spending on other commodities in Indonesia is limited.ObjectiveThis study aims to estimate the crowding-out effects of tobacco spending on the expenditure of other goods and services in Indonesia.MethodThis research estimates the conditional Engel curve with three-stage least square regression, where the instrumental variable technique is applied to address the simultaneity of tobacco and total non-tobacco spending. The study employs a large-scale household budget survey from the Indonesian socioeconomic survey (Susenas) from 2017 to 2019, comprising over 900 000 households.FindingTobacco spending crowds out the share of a household’s budget allocated for food, such as spending on staples, meat, dairy, vegetables and fruits. Moreover, tobacco spending also reduces the share of expenditure spent on non-food commodities, such as clothing, housing, utilities, durable and non-durable goods, education, healthcare and entertainment, although its effect is not as large as the crowding out on food. The analysis shows that the crowding-out effects of tobacco are observed across low-income, middle-income and high-income households. In addition, the simulation suggests that reducing tobacco expenditure will increase household spending on essential needs.

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

“…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.…”

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 ).…”