Applied Health Economics and Health Policy

, Volume 3, Issue 4, pp 263–272 | Cite as

Burning a hole in the budget

Tobacco spending and its crowd-out of other goods
  • Susan H. Busch
  • Mireia Jofre-Bonet
  • Tracy A. Falba
  • Jody L. Sindelar


Smoking is an expensive habit. Smoking households spend, on average, more than $US1000 annually on cigarettes. When a family member quits, in addition to the former smoker’s improved long-term health, families benefit because savings from reduced cigarette expenditures can be allocated to other goods. For households in which some members continue to smoke, smoking expenditures crowd-out other purchases, which may affect other household members, as well as the smoker. We empirically analyse how expenditures on tobacco crowd-out consumption of other goods, estimating the patterns of substitution and complementarity between tobacco products and other categories of household expenditure. We use the Consumer Expenditure Survey data for the years 1995–2001, which we complement with regional price data and state cigarette prices. We estimate a consumer demand system that includes several main expenditure categories (cigarettes, food, alcohol, housing, apparel, transportation, medical care) and controls for socioeconomic variables and other sources of observable heterogeneity. Descriptive data indicate that, comparing smokers to nonsmokers, smokers spend less on housing. Results from the demand system indicate that as the price of cigarettes rises, households increase the quantity of food purchased, and, in some samples, reduce the quantity of apparel and housing purchased.


Price Elasticity Demand System Budget Share Expenditure Category Cigarette Price 



We would like to acknowledge financial support from the Robert Wood Johnson Foundation (#039787) and the National Institute on Drug Abuse (NIDA RO1-DA14471). We also thank Frank Chaloupka for providing ciga-rette price data and Meg Wise for programming assistance. ## The authors have provided no information on conflicts of interest directly relevant to the content of this article.


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Copyright information

© Adis Data Information BV 2004

Authors and Affiliations

  • Susan H. Busch
    • 1
  • Mireia Jofre-Bonet
    • 2
    • 3
  • Tracy A. Falba
    • 1
  • Jody L. Sindelar
    • 1
    • 4
  1. 1.The Department of Epidemiology and Public HealthYale University School of MedicineNew HavenUSA
  2. 2.London School of Hygiene and Tropical Medicine (LSHTM)London School of Economics (LSE)LondonUK
  3. 3.Center of Research in Health Economics (CRES)BarcelonaSpain
  4. 4.National Bureau of Economics Research (NBER)CambridgeUSA

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