Academic journal article Alcohol Research

The Effects of Prices on Alcohol Use and Its Consequences

Academic journal article Alcohol Research

The Effects of Prices on Alcohol Use and Its Consequences

Article excerpt

Over the past three decades, economists and others have devoted considerable effort to assessing the impact of alcoholic-beverage taxes and prices on alcohol consumption and its related adverse consequences. Numerous studies have examined the effects of increases in monetary prices (e.g., through raising taxes) on a wide range of behavioral and health problems related to alcohol use, including heavy drinking, drinking and driving, violence and other related crimes, liver cirrhosis mortality, suicides, reproductive issues (including risky sexual behaviors, sexually transmitted diseases, and abortions), and school performance. Some of these studies specifically have focused on high-risk populations, such as adolescents and young adults.

This article first briefly reviews trends in alcoholic-beverage excise taxes as well as the limited literature addressing the connection between taxes and prices. The majority of the article then focuses on studies investigating the effects of prices (or taxes) on alcohol use and abuse and related adverse consequences (for additional reviews, see Chaloupka 2002; Chaloupka et al. 1998, 2002; Cook and Moore 2000, 2002; Wagenaar et al. 2010). Given the size and scope of the literature in this area, this article is not intended to be an encyclopedic review but aims to summarize the general findings and highlight recent studies. Taken together, the findings confirm an inverse relationship between alcohol prices and the demand for alcohol consumption--that is, the higher the price, the lower the demand. Moreover, policies that raise alcoholic- beverage taxes and, consequently, prices are effective in reducing alcohol use and abuse as well as related health, economic, and social consequences.


From an economic perspective, various public policies that can affect the full price of alcoholic beverages--that is, the monetary costs (i.e., prices) plus the time costs and expected legal costs associated with alcohol use--also influence alcohol use. For example, Xu and Kaestner (2010) found that the increases in weekly hours of work were inversely associated with binge drinking--that is, binge--drinking frequency declined if people had less free time. Likewise, other studies showed that minimum-drinking-age and zero-tolerance laws reduced youth alcohol consumption and driving after drinking by increasing the expected legal costs of alcohol use (Carpenter 2004; Hingson et al. 1989, 1994; Liang and Huang 2008; Saffer and Grossman 1987; Wagenaar and Toomey 2002; Wagenaar et al. 2001; Wechsler et al. 2003). Many States also implement additional policies that reduce the availability of alcoholic beverages, including limits on the places where, or times when, alcoholic beverages can be sold or dram shop laws, (1) thus raising the time and legal costs associated with obtaining alcohol. Because other articles in the issue will discuss these policies and their impacts on alcohol consumption and related consequences in more detail, this article focuses on policies that affect the monetary prices of alcoholic beverages.

Federal Excise Taxes on Alcoholic Beverages

Excise taxation is the primary policy for directly influencing the prices of alcoholic beverages. The Federal Government imposes volume taxes on distilled spirits, wine, and beer; however, increases in these taxes have been rare in recent decades. In fact, since 1951, Federal excise tax rates on beer and wine only have increased once (on January 1, 1991) and the tax on distilled spirits only twice (on October 1, 1985, and January 1, 1991). As a result of these infrequent and modest increases, the real tax rates (i.e., inflation-adjusted values) have declined significantly over the years. For example, the real Federal beer excise tax, which was nearly 31 dollars per barrel in 1951, had fallen to approximately 6 dollars per barrel in 2009. Likewise, the Federal excise tax on distilled spirits fell from 35 dollars in 1951 to 6 dollars in 2009 (see figure 1). …

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