<p>I want to conduct a research that will evaluate the impact of a sin tax reform with respect to their expenditure on &quot;demerit&quot; goods (sugar and tobacco specifically). However, upon inspecting the data set, some data points contain zero expenditure on either sugar or tobacco.</p>
<p>I have read that I can do two-part modeling as my analysis wherein I will measure first the participation of the household in consuming sugar or tobacco using logit with the following specifications:</p>
<p><span class="math-container">$Y_{it}=F(\alpha + \delta_1 PostTax_{i} + \gamma_1 X_{it} + \epsilon_{it})$</span></p>
<p>Where <span class="math-container">$Y_{it}=1$</span> if there is a positive expenditure on demerit goods and zero otherwise, <span class="math-container">$PostTax$</span> is a dummy variable indicating if the expenditure was made pre or during the year of implementation, and <span class="math-container">$X_{it}$</span> represents the household characteristics. I intend to use the result of this model to determine if there was a decrease in the consumption of demerit goods during the implementation year (captured by <span class="math-container">$\delta_1$</span>).</p>
<p>Then for households that have positive consumption for pre and post tax, I intend to use OLS to measure the change in expenditure on aforesaid goods (to be captured by <span class="math-container">$\xi_1$</span>), as follows:</p>
<p><span class="math-container">$\ln{Expenditure_{it}}=\beta + \xi_1 PostTax_{it} + \zeta_1X_{it}+u_{it}$</span></p>
<p>Is my framework correct? If yes, could you suggest ways on how to improve it? If not, could you suggest other ways on how to do my analysis?</p>
<p>By the way, my dataset is a <strong>pooled cross-section household dataset</strong> (not panel) comprising two periods (pre and the year the tax reform was implemented).</p>
<p>Any help will be greatly appreciated.</p>

CC BY-SA 4.0
2024-08-02T00:17:46.797Z
Pooled cross-section as in the individuals don't necessarily show up in both periods? What household characteristics do you have?
Brennan
CC BY-SA 4.0
2024-08-02T01:56:56.893Z
Hi, @Brennan. Yes, it is pooled cross-section since my dataset is administrative in nature and there is no way to check if the household surveyed during the pre-tax period appeared during the implementation year survey.

For the characteristics, I have household income, sex of the head of household, education level of the head, number of family members, region that the household belongs to, household income decile.
Martin
CC BY-SA 4.0
2024-08-02T10:22:12.540Z
Due to the religious association of the word sin, I think the usual nomenclature is "[demerit good](https://en.wikipedia.org/wiki/Demerit_good)".
Giskard
CC BY-SA 4.0
2024-08-02T12:30:49.983Z
This is noted, @Giskard. Thanks.
Martin
<econometrics><applied-econometrics><taxation><difference-in-difference><logit>
Help in estimating the effect of tax for demerit goods?
Martin
# Help in estimating the effect of tax for demerit goods?

(Asked by: username_0 on 2024-08-01)

I want to conduct a research that will evaluate the impact of a sin tax reform with respect to their expenditure on "demerit" goods (sugar and tobacco specifically). However, upon inspecting the data set, some data points contain zero expenditure on either sugar or tobacco.

I have read that I can do two-part modeling as my analysis wherein I will measure first the participation of the household in consuming sugar or tobacco using logit with the following specifications:

$Y\_{it}=F(\alpha + \delta\_1 PostTax\_{i} + \gamma\_1 X\_{it} + \epsilon\_{it})$

Where $Y\_{it}=1$ if there is a positive expenditure on demerit goods and zero otherwise, $PostTax$ is a dummy variable indicating if the expenditure was made pre or during the year of implementation, and $X\_{it}$ represents the household characteristics. I intend to use the result of this model to determine if there was a decrease in the consumption of demerit goods during the implementation year (captured by $\delta\_1$).

Then for households that have positive consumption for pre and post tax, I intend to use OLS to measure the change in expenditure on aforesaid goods (to be captured by $\xi\_1$), as follows:

$\ln{Expenditure\_{it}}=\beta + \xi\_1 PostTax\_{it} + \zeta\_1X\_{it}+u\_{it}$

Is my framework correct? If yes, could you suggest ways on how to improve it? If not, could you suggest other ways on how to do my analysis?

By the way, my dataset is a **pooled cross-section household dataset** (not panel) comprising two periods (pre and the year the tax reform was implemented).

Any help will be greatly appreciated.

**Tags:** econometrics, applied-econometrics, taxation, difference-in-difference, logit

> **Comments:**
> **username_1**: Pooled cross-section as in the individuals don't necessarily show up in both periods? What household characteristics do you have?  
> **username_0**: Hi, @username_1. Yes, it is pooled cross-section since my dataset is administrative in nature and there is no way to check if the household surveyed during the pre-tax period appeared during the implementation year survey.  For the characteristics, I have household income, sex of the head of household, education level of the head, number of family members, region that the household belongs to, household income decile.  
> **username_2**: Due to the religious association of the word sin, I think the usual nomenclature is "[demerit good](https://en.wikipedia.org/wiki/Demerit_good)".  
> **username_0**: This is noted, @username_2. Thanks.  

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## 0 answers

