In Montenegro, which is in a group of LMICs, alcohol drinking is traditionally widespread and socially acceptable behavior. An efficient road map for sustainable development for Montenegro must include the reduction of health-harmful substance use through excise tax increase. These results, along with elasticities calculated by sex (male, −0.55 female, −0.5), income groups (low income, −1.16 middle-income, −0.46 high-income, −0.26), and for the working-age group (−0.74), demonstrate that an increase in excise taxes could be a very efficient tool in decreasing the adverse effect of spirits and cigarettes on household member’s productivity, health, and budget, which is in line with SDGs. The results show that the spirits’ own price elasticity equaled −0.45, while the cross-price elasticity equaled −0.17, showing that spirits and cigarettes are complementary goods. Using these results, we simulated the effects of spirit use on public revenue. Cigarettes were included as a control variable as, along with spirits, they are one of the most harmful substances used in Montenegro. The price elasticity of spirits was estimated using Deaton’s methodology on the Household Budget Survey (HBS) data in the period of 2006–2017. It is the first study on this topic in Montenegro, where adverse effects of alcohol are recognized as an important obstacle in achieving Sustainable Development Goals (SDGs). The objective of this study was to estimate the sensitivity of spirit quantity demanded for price and income changes in Montenegro and to show the effectiveness of taxation-policy changes in the reduction of spirit consumption.
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