Crowding-out Effect of Tobacco Expenditure And Its Implications on Intra-Household Resource Allocation

Rijo M John
JEL codes: 
Working Paper Series No. WP-2006-002

The aim of this paper is to examine if tobacco consumption crowds-out consumption of basic
needs and whether it has implications for nutrition intake and intra-household resource
allocation in developing countries. In the process we also examine whether preference over
other commodities for tobacco users and non users vary significantly. Using a nationally
representative household sample survey from India for the year 1999-2000, we analyze the
pattern of spending on various groups of commodities by the status of tobacco consumption
of households. Average per capita per diem intake of nutrients such as calorie, fat and
protein were reported to be lower among the high tobacco spending group of households
vis-`a-vis the no-spending category. A system of quadratic conditional Engel curves was
estimated for a set of ten broad groups of commodities. Separability between tobacco and
most other goods was rejected. The results suggest that tobacco consuming households
had lower consumption of certain commodities such as milk, clean fuels and entertainment
which has direct bearing on mostly children and female members in the household suggesting
possible gender effects and biases in intra-household resource allocation. Tobacco
spending also found to have negative effects on household nutrition intake.