Does tobacco spending crowd out the household budget in Vietnam? Evidence from Vietnam household living standards survey 2014–2020

The objective of this study is to estimate the crowding-out effect of tobacco spending on the allocation of the Vietnamese household budget, providing evidence-based insights for policymakers to design effective measures for tobacco control. The study uses data from the nationally representative Vietnam Household Living Standards Survey (VHLSS) for the years 2014, 2016, 2018, and 2020 to estimate a system of quadratic conditional Engel curves. The Generalized Method of Moments Three-Stage Least Squares (GMM 3SLS) technique is applied to address issues of endogeneity and heteroskedasticity, ensuring robust and consistent results. The findings show that tobacco expenditure significantly reduces household budget shares for food, education, clothing, transportation, communication, fuel and gas, and entertainment. Education is most affected, with tobacco spending substantially reducing investment in schooling. Low-income and rural households are particularly vulnerable. In contrast, tobacco expenditure is positively associated with health and alcohol spending. Additionally, the results indicate that the adverse crowding-out effects weakened substantially after the 2016 excise tax reform, reflecting a structural shift in household responses. To maximize public health and welfare gains, policymakers should continue to increase and periodically adjust tobacco excise taxes, thereby reducing consumption and preventing the diversion of resources from essential expenditures such as food and education, especially among low-income and rural households. Earmarking part of the additional tax revenues for pro-poor education and health programs would help protect vulnerable groups. Finally, systematic monitoring and evaluation of the excise tax reform remain crucial to sustaining both its effectiveness and equity over time.