Assessing the Causal Impact of Tobacco Expenditure on Household Spending Patterns in Zambia

This paper adds to the literature on the crowding out effect of tobacco expenditure in two ways. Firstly, the paper uses expenditure data from a low income sub-Saharan African country, Zambia, where most households are poor. Secondly, unlike previous studies, we relax the exclusion restriction and allow the standard instrumental variable used in the literature, the adult sex ratio, to be correlated with the error term. We consider the relaxation of this restriction to be reasonable given what we know about the effects of household structure on households’ expenditure decisions. Our results confirm some findings in the literature. For example, we find that smoking households allocate less expenditure towards food, schooling, clothing, transportation and equipment maintenance. We also find evidence suggesting that the crowding out of food is more severe for poorer households. But unlike previous studies, we do not find instances of crowding in whereby tobacco leads households to allocate more expenditure towards a particular commodity. In sum, our results show that a broader accounting of tobacco’s costs in Zambia should include the costs associated with under nutrition and under investment in education by households.