The crowding-out effect of tobacco on consumer expenditures in Bulgaria

This report investigates the economic displacement effects of tobacco consumption in Bulgaria, using anonymised Household Budget Survey data from nearly 26,500 households in the 2015-2024 period. The analysis confirms a substantial crowding-out effect, whereby tobacco spending reduces household expenditures on key components of human capital (i.e. health care, education, housing, clothing, recreation, sports and culture) while simultaneously crowding in additional spending on food, alcohol, transport and hospitality services. The study also documents a notable rise in household-level tobacco prevalence, increasing by more than 10 percentage points over the past decade, alongside real growth in tobacco expenditures per smoking household. These patterns exacerbate poverty risks, weaken human capital formation, and pose broader macroeconomic challenges. The findings underscore the urgent need for more ambitious tobacco control policies in Bulgaria, grounded not only in public health objectives but also in economic and social welfare considerations.

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

JEL classification: I12, D12, H31, C33

Countries covered: Bulgaria