In this paper, we estimate income elasticities and investigate the determinants of alcohol and tobacco consumption in Lesotho using a Double-Hurdle model on the 2002/03 Lesotho HBS data. The results reveal that both alcohol and tobacco are income inelastic with estimated elasticities of 0.6553 and 0.3561, respectively. Given this, therefore, we argue that differentiated tax hikes, with a relatively higher rate on tobacco, can be more effective both as a consumption deterrent and revenue increasing policy, without much compromise on employment and poverty. Further, we fi nd evidence that alcoholic beverages and tobacco are complementaries, suggesting the need for a more holistic social policy aimed at curbing consumption of these two goods.
Consumer demand for alcoholic beverages and tobacco in Lesotho: A double-hurdle approach
Working Paper 315
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