The impact of alcohol beverage price and tax on alcohol consumption

Abstract

Alcohol involvement in auto crashes, violence, homicide and its associated health consequences is an important concern, and the price (tax) for alcohol may have a significant impact on these behaviors. Although some studies have indicated that total alcohol consumption is responsive to price, little work has focused on the effect of specifically, alcoholic beverage price (tax), considering economic, demographic and regional differences and the time trend on the demand for those beverages, while still accounting for substitution between different types of alcoholic beverages. In this study, I examine the price and tax effect on the demand for alcoholic beverages namely, beer, wine and spirits using a variant of an Almost Ideal Demand System (Banks, Blundell and Lewel, 1997). The study used state level aggregate data on consumption of alcoholic beverages and price from NIAAA and ACCRA respectively. The results indicate that taxes on alcoholic beverages would reduce consumption of all the alcoholic beverages. However, the price elasticities vary considerably between the different types of alcoholic beverages. In consequence, if the aim of a tax is to reduce alcohol consumption and its associated effects, then policy makers should target spirits. On the other hand, if the aim is to raise revenue, then policy makers should target beer and wine. The study used publicly available state level aggregate data.