Does tobacco and alcohol consumption crowd-out household expenditures in the Philippines?
Date
2016-06
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Abstract
Tobacco and alcohol consumption has two major adverse health effects: (1) direct
effects to consumers who experience different illnesses such as lung cancer, and cerebro-
vascular, heart and liver diseases (World Health Organization, 2003; National Institutes
of Health, 2016); and (2) indirect effects brought about by negative externalities in the
form of second-hand, third-hand smoking, and accidents related to drunk-driving, for
example. There are also two types of costs related to the consumption of these two goods
– direct costs through their purchase and indirect costs attributable to possibly crowding
out the purchase and consumption of other goods such as food and education, which may
lead to malnutrition, lower daily caloric intake, reduced human capital investment, and
financial instability.
The purpose of this study is to examine these indirect costs, in particular we aim
to determine whether expenditures on tobacco and alcohol crowd-out expenditures on
other goods. Using the 2009 Family Income and Expenditure Survey (FIES), we
construct a system of Conditional Engel Curves from the Quadratic Almost Ideal
Demand System (QUAIDS) to formulate the demand functions of 11 household
expenditure categories. Ordinary Least Squares (OLS), Seemingly Unrelated Regressions
(SUR), and Fractional Logit (Flogit) results show that the nature of the crowding-out
effect differs across income groups, gender of the household head, and household
location. Low-income households are the most severely affected, with their budget for
food decreasing by almost 50% and other critical expenditures on basic needs also
crowded-out. Although food expenditures are unaffected, middle-income households are
still worse-off with their budget for education and rent on housing each crowded-out by
more than 30%. The wealth of high-income households is also adversely affected, with
their rate of saving declining by about 78% to compensate for tobacco and alcohol
purchases. Further analysis also shows that male-headed households and urban
households possibly experience the crowding-out effects more than female-headed
households and rural households, respectively.
Description
Keywords
Philippines, tobacco, alcohol, QUAIDS, crowding-out