In this paper, we estimate income elasticities and investigate the determinants
of alcohol and tobacco consumption in Lesotho using a Double-Hurdle
model on the 2002/03 Lesotho HBS data. The results reveal that both alcohol
and tobacco are income inelastic with estimated elasticities of 0.6553 and
0.3561, respectively. Given this, therefore, we argue that di§erentiated tax
hikes, with a relatively higher rate on tobacco, can be more e§ective both as
a consumption deterrent and revenue increasing policy, without much compromise
on employment and poverty. Further, we Önd evidence that alcoholic
beverages and tobacco are complementaries, suggesting the need for a more
holistic social policy aimed at curbing consumption of these two goods.