Essays On The Economics Of Tobacco And Alcohol Control Policy In Kenya

ABSTRACT

This thesis uses data from Kenya to contribute to the literature on tobacco and alcohol

control policies in low and middle-income countries. The thesis uses the two most recent

household and budget surveys (2005/6 and 2015/16), to examine some of the effects of the

tobacco and alcohol control policies that were implemented in Kenya between 2005 and 2015.

Chapter 2 considers the impact of consumption and taxation of tobacco and alcohol on

household spending patterns.

An instrumental variable approach is used in the estimation of the difference in

spending patterns, between tobacco-consuming (alcohol-consuming) households and

households that do not consume tobacco (alcohol). Following the precedent of some other

studies, the adult sex ratio is used as an instrumental variable for the tobacco and alcohol

consumption status of households. However, the adult sex ratio may not meet the exclusion

restriction. In order to address this concern, I change the specification of the instrumental

variable and relax the exclusion restriction. As a result, the upper and lower bounds of the

difference in expenditure shares between households that consumed tobacco (alcohol) and the

households that did not consume tobacco (alcohol) are estimated.

A natural experiment involving tobacco and alcohol taxes occurred during the data

collection period of one of the household surveys: the excise tax on tobacco and alcohol was

increased during the data collection phase. A matched difference-in-differences (MDID)

technique is used to estimate the implication of a tobacco (alcohol) tax increase on household

spending patterns.

The pseudo-panel generated from MDID also provided a new way of controlling for

possible endogeneity arising from time-invariant unobservable variables. Therefore, MDID is

used as a new approach, for comparing household spending patterns of tobacco-consuming

(alcohol-consuming) households with those of households that do not consume tobacco

(alcohol).

The price and non-price tobacco-control policies that were implemented between

2005/6 and 2015/16 contributed to a decrease in household tobacco use prevalence. However,

alcohol-control policies implemented over the same period did not successfully reduce the

overall prevalence of alcohol consumption among Kenyan households.

Tobacco- and alcohol-consuming households were found to spend less on education,

energy, rent, healthcare, and food items. MDID results confirmed that tobacco and alcohol

consuming households had lower expenditure shares on items necessary for human capital

development. The increase in tobacco taxes did not have an impact on household spending

patterns among tobacco-consuming households. However, an increase in taxes on alcohol led

to further crowding out of expenditure on fruits.

Chapter 3 uses the risk of child malnutrition in Kenya, to examine the effectiveness of

tobacco and alcohol control policies, in reducing tobacco and alcohol consumption prevalence

among vulnerable households. Past studies in this literature did not explicitly control for

cluster/village level factors that may affect child nutrition.

A multilevel/mixed effects logit and general equations estimation logit model are used

to estimate the difference in the risk of child malnutrition, between households that consumed

tobacco and alcohol and those that did not consume the two goods. The two models account

for the possibility of correlation in nutritional outcomes for children living in the same

cluster/village. The two methods also allowed for the inclusion of contextual effects that could

inform public health policy in Kenya.

In 2005/6 the odds of long-term child malnutrition were higher for children living in

tobacco and alcohol consuming households in rural Kenya. The tobacco and alcohol control

policies implemented between 2005/6 and 2015/16 were more effective in reducing tobacco

and alcohol consumption prevalence among the poorest rural households. As a result, the

decrease in child malnutrition prevalence was greater among households that consumed

tobacco and alcohol. In 2015/16 the risk of child malnutrition in tobacco and alcohol

consuming households was similar to that of non-consuming households.

The results from chapter 3 indicate that tobacco and alcohol control policies that were

implemented in Kenya over the ten-year period, contributed to the reduction in consumption

of the two goods among the poorest rural households. Therefore, very poor households invested

resources, which could have been used for tobacco/alcohol consumption, on human capital

development.

Chapter 2 and chapter 3 provide evidence on some of the opportunity costs associated

with tobacco/alcohol consumption as well as potential benefits that may arise from controlling

consumption of the two goods. Subsequently, Chapter 4 focuses on the price elasticity of

demand for tobacco and alcohol products. Tax-induced price increases is one of the most

effective policy tools for controlling the demand for the two goods.

The effectiveness of price policy in controlling demand for tobacco and alcohol may be

hindered by among other things, the consumption of informally produced alcohol and non cigarette

tobacco products as well as other stimulants. Majority of the relatively few studies

done on African countries were on South Africa and most of them estimated the price elasticity

of demand for cigarettes and formally produced alcohol products. Further, I am not aware of

any peer-reviewed study that has estimated the price elasticity of demand for alcohol and

tobacco products in Kenya.

Household survey data is used to estimate the own-price and expenditure elasticities (as

proxies for income elasticities) of demand for tobacco and alcohol products in Kenya. The

responsiveness of the demand for informally produced alcohol as well as non-cigarette tobacco

products to changes in prices of cigarettes and formally produced beers is also estimated. This

thesis also estimates the responsiveness of demand for khat to changes in the price of cigarettes

and formally produced beers. Khat is a stimulant mostly consumed in Arabia and the Horn of

Africa.

One of the concerns about the use of taxes as a measure to control tobacco and alcohol

consumption is the possible regressive nature of tobacco and alcohol taxes. Therefore, chapter

4 also examines the impact of price and non-price tobacco- and alcohol-control policies on the

regressivity/progressivity of household tobacco and alcohol burdens (budget shares).

Tobacco-control policies implemented between 2005/6 and 2015/16, contributed to a

reduction in the regressivity of household tobacco budget shares. The changing profile of

tobacco consuming households as well as economic growth over the period may have also

contributed to the increase in the estimated price elasticity of demand for cigarettes. Over the

ten-year period, the estimated price elasticity of demand for cigarettes increased from -0.63 to

-0.42. Khat and snuff tobacco were found to be complements for cigarettes.

Khat and informally produced spirits were found to be substitutes for formally produced

beers. Further, the demand for formally produced beers was found to be price elastic. The

alcohol-control policies that were implemented over the ten-year period, contributed to a

reduction in the progressivity of overall alcohol budget shares. However, over the ten-year

period, there was a rapid increase in demand for spirits in Kenya.