Costly Tradeoffs: How Addictive Consumption Affects Human Capital Expenditure

Abstract

With the consumption of addictive substances such as alcohol and tobacco on the rise in India, this article examines the crowding-out effect of intoxicant consumption on human capital using nationally representative household-level data over a period of 10 years. The Blinder–Oaxaca technique is used to investigate and explain the difference in the expenditure on education between consumers and non-consumers of intoxicants. It is found that intoxicant expenditure is a significant component of total household expenditure and is negatively correlated with education and healthcare expenditure. Results show that such displacements are the highest for the poorest households, and there exist inherent and unobserved differences between consumers and non-consumers of addictive substances. Given the increasing attention being paid towards the provision of social safety nets in India, this article provides an understanding on how policies need to be better designed to reduce such tradeoffs in the presence of addiction.

JEL Codes: H53, I15, I38, O15