The crowd out effect of tobacco expenditure on other household expenditures in rural China

Presenter: Hong Wang, Abt. Associate Inc.

Abstract

Many studies have shown that smoking is an expensive behavior due to its health effects. However, there is little evidence on how tobacco spending drives out other critical expenditures, including basic needs. This crowd out effect affects both the smoker and her household. In China, over sixty percent of men smoke, making this an important public health problem. The aim of this study is to examine the causal relationship between tobacco spending and other household expenditures in rural China. This study adopted a differences-in-differences (or pre-post treatment-control) study design. A two wave panel survey (2002, 2005) collected in the Guizhou Province of China requested information on smoking status, household expenditures, socio-economic and demographic characteristics. Household expenditures of 334 rural residents who initiated smoking during the study period were considered. Using propensity score matching, these individuals were matched with never-smoking respondents based on socio-economic and demographic characteristics. The relationship between change in tobacco expenditure and change in 17 household expenditure categories were estimated. The results indicated that, compared with never smokers, people who initiated smoking increased tobacco expenditure by six percent of household expenditures. This tobacco expenditure crowded out other important household expenditures, including education, medical care, food, and farming investment expenses. Reductions in these expenditures may significantly reduce the well-being of smokers as well as the smoker’s family.