The crowding-out effect of tobacco expenditures in Romania: A comprehensive analysis of household resource allocation and socioeconomic implications

This report examines how tobacco expenditure displaces other categories of household consumption in Romania, drawing on nationally representative microdata from the Household Budget Survey for the
2015-2023 period. Employing regression-adjusted OLS and instrumental-variable specifications, the study documents a significant crowding-out of essential expenditures. Conditional on income and demographic composition, tobacco-consuming households allocate significantly less of their budget to housing and utilities, health, household maintenance, clothing, leisure, education, and personal care. At the same time, they allocate significantly more of their budget to alcohol, transport, and information and communications technology (ICT) services. The positive association with alcohol expenditure is consistent with the well-documented complementarity between the two addictive goods. While food expenditure is not significantly lower among tobacco-consuming households overall, higher levels of tobacco consumption among smokers are associated with lower spending on food, indicating crowding out at the intensive margin. The crowding-out of housing and the crowding-in of alcohol are both particularly pronounced among low-income households, suggesting that the welfare costs of tobacco use fall most heavily on those least able to bear them. Set against an increase of approximately 40% in tobacco affordability between 2011 and 2024, the findings call for excise increases that outpace wage growth, the earmarking of incremental revenue for household health, and statutory monitoring of tobacco affordability.

Keywords: Crowding-out effect, tobacco consumption, household expenditure

JEL classification: I12, D12, H31, C33

Countries covered: Romania