This paper addresses the problem of zeroes in tobacco expenditure. Generally, tobacco demand
is estimated using limited dependent variable models, i.e. Tobit or Double Hurdle Models,
which take into account the zero expenditure problem under the assumption tThis paper addresses the problem of zeroes in tobacco expenditure. Generally, tobacco demand
is estimated using limited dependent variable models, i.e. Tobit or Double Hurdle Models,
which take into account the zero expenditure problem under the assumption that a relatively
important number of smokers declared a zero in tobacco expenditure. Clearly, if all zeroes
where from non-smokers then demand estimation could be done using traditional methods over
the positive expenditure observations. Based on the Spanish Expenditure Survey we estimate
the conditional probability of non-expenditure by a smoker, finding that such probability is
extremely small. This suggests that smokers buy quite regularly and hence it is possible to
estimate the tobacco demand using only the positive observations.[+][-]