The impact of tobacco expenditure on household consumption patterns in rural China

Abstract

Smoking is not only unhealthy, it is also expensive. Spending on tobacco could drive out other critical expenditures, including basic needs. This crowd out effect would be greatest in low-income countries, affecting not only the smoker but the rest of the family as well. The aim of this study is to examine the impact of tobacco spending on household expenditure patterns in rural China. China is a low-income country with a high prevalence of smoking, especially among men. The data, a sample of 4538 households, are from a household survey conducted in six townships in two provinces in rural China. Fractional Logit (Flogit) model is used as the estimation method. We estimate the relationship between tobacco spending and spending on 17 other categories, controlling for socio-economic and demographic characteristics of the household. The results indicate that spending on tobacco affects human capital investment (e.g. education and health), future farming productivity (e.g. farming equipment and seeds), and financial security (e.g. saving and insurance). Smokers also tend to spend more on alcohol, thus exacerbating the impact of addictive substances on spending on basic needs. Smoking expenses can harm other family members by reducing expenditures on basic needs such as foods, utilities, and durable goods consumption. Thus smoking can have important intra-family distributional impacts.