Crowding out and impoverishing effect of tobacco in Mexico

Abstract

IntroductionTobacco is one of the world’s largest preventable causes of premature death, accounting for more than 8 million deaths and costing the global economy US$1.4 trillion each year. Smoking is a global problem with 1.3 billion people using tobacco worldwide, who will face harmful effects on health and on people’s current and future financial situations and quality of life.This article aims to be the first study to generate evidence on the effects of smoking on household expenditure and the number of people living under the poverty threshold by studying the crowding out and impoverishing effect in Mexico.MethodsThrough econometric methods and maximising a household utility function we estimate the crowding out and impoverishing effect of tobacco consumption in México based on household's income and spending survey from 2020.ResultsSpending on tobacco crowds out household spending on other goods and services. In Mexico, spending on tobacco results in decreased spending on essential goods and services, like education and healthcare, and increased spending on harmful goods such as alcoholic beverages. These effects are common across all income levels but are more pronounced in low-income households. When spending on tobacco increases, for example, following regular price increases made by the tobacco industry, the crowding out effect is exacerbated.In addition, smoking has an impoverishing effect on the population. This is because some families find that their remaining income level falls below the poverty line after deducting money spent on tobacco (a concept known as secondary poverty). In Mexico, 909 132 people are left with a disposable income level below the extreme poverty line because of expenditure on tobacco and smoking-related diseases.ConclusionsSmoking affects individual health and the finances of households in Mexico, particularly those of low-income people. By increasing tobacco taxes, those who quit smoking increase their quality of life and well-being. However, those who continue to smoke and increase their tobacco spending are affected by a shift in their spending on other goods and services.The increase in tobacco taxes must be accompanied by public policies that help reduce tobacco consumption and compensate the crowding out on goods and services relevant to the development of households.