Academic journal article Human Ecology

Taxing Questions

Academic journal article Human Ecology

Taxing Questions

Article excerpt

Economist Donald Kenkel believes taxes can be used as an effective policy tool to promote public health. But he allows that there are tricky trade-offs, especially when considering the specific groups of people affected.

It's long been recognized in economics circles that the "law of demand" really works--that is, when the price of a product goes up, people buy less of it. However, when this principle is applied to alcohol and tobacco products-- specifically, when taxation is used to curb drinking and smoking--a wrinkle or two appears. That's especially the case now when even the federal government allows that moderate consumption of alcoholic beverages may lower the risk of coronary heart disease.

"There are tricky trade-offs involved here," explains Donald Kenkel, who has spent the first decade of his career studying how taxation can be used as a tool to promote public health. "We have to go beyond past research and look at how the law of demand influences specific subpopulations."

Like moderate drinkers. And pregnant women. Back in 1990 when the National Institute for Alcohol Abuse and Alcoholism (NIAAA) put out a special request for research from an economic perspective, a small body of evidence showed that the rates of traffic fatalities and cirrhosis of the liver were lower in those states that had higher taxes on alcoholic beverages. The variation of taxation rates across the country is significant. Beer, for example, is taxed at $.06 a gallon in Wisconsin and at $.53 in Alabama. The tax on wine in New York State is $.19 a gallon, while in Hawaii it's $1.30.

But who are the people, the subpopulations, who curb their drinking when prices go up? Are they the inveterate problem drinkers, the alcoholics? Or are they the moderate drinkers? As it turns out, both.

In a series of studies funded by the NIAAA, Kenkel looked at self-reported data by heavy drinkers and self-reported data by those who had driven after having had too much to drink. And he found that in states where taxes are higher, self-reported heavy drinking and self-reported drunk driving are lower.

Studies show that for every alcoholic there are many people who, while they typically drink in moderation, have on rare occasions hit the road after a few too many. While alcoholics are more likely to drive drunk, moderate drinkers account for a large share of traffic fatalities. And they, too, economists have shown, are influenced by the price of a drink.

The evidence is clear that higher taxes reduce problem drinking by people who aren't problem drinkers, says Kenkel, an associate professor of policy analysis and management.

But here's the rub. Now that moderate alcohol consumption is acknowledged as a health benefit--even by organizations such as the NIAAA--how much does taxation influence lives saved overall?

"Suppose we increase alcohol taxes by 20 percent," says Kenkel. "To the extent that taxation discourages heavy drinking, we may save some people who would have been killed by drunk drivers, but at the same time we may cause deaths due to heart disease by discouraging moderate drinking."

So it's critically important to know the relative impact of alcoholic beverage prices on both these groups. That's a question Kenkel will be addressing in the years to come.

Right now he's looking at another public health issue, whether taxation is an effective means of preventing fetal alcohol syndrome. Pregnant women comprise his subpopulation for this study.

All alcoholic beverage containers warn on their labels that "the Surgeon General has determined that pregnant women should not drink alcohol" because it is not safe to drink during pregnancy. Scientists have not established a safe level of alcohol intake during pregnancy, including the first few weeks. Even moderate drinking at certain times during the nine months can result in fetal alcohol effects. …

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