Academic journal article Alcohol Research

The Effects of Price on Alcohol Consumption and Alcohol-Related Problems

Academic journal article Alcohol Research

The Effects of Price on Alcohol Consumption and Alcohol-Related Problems

Article excerpt

The most fundamental law of economics links the price of a product to the demand for that product. Accordingly, increases in the monetary price of alcohol (i.e., through tax increases) would be expected to lower alcohol consumption and its adverse consequences. Studies investigating such a relationship found that alcohol prices were one factor influencing alcohol consumption among youth and young adults. Other studies determined that increases in the total price of alcohol can reduce drinking and driving and its consequences among all age groups; lower the frequency of diseases, injuries, and deaths related to alcohol use and abuse; and reduce alcohol-related violence and other crime. KEY WORDS: alcohol or other drug (AOD) price; economic theory of AOD use (AODU); elasticity of demand; underage drinking; minimum drinking age; drinking and driving; AOD related (AODR) accident mortality; AOD availability; AODR injury; AODR crime; AODR violence; sales and excise tax

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Since the early 1980s, a growing number of economists have examined the impact of the price of alcoholic beverages on alcohol consumption. Other studies have evaluated the effects of price on various outcomes related to alcohol consumption, including nonfatal and fatal motor vehicle crashes and other injuries, liver cirrhosis and other alcohol-related mortality, and violence and other crime. This research, which has used a wide variety of data, generally has concluded that increases in the prices of alcoholic beverages lead to reductions in drinking and heavy drinking as well as in the consequences of alcohol use and abuse. This conclusion concurs with a fundamental law of economics called the downward sloping demand curve, which states that as the price of a product rises, the quantity demanded of that product falls. Since the price of alcohol can be manipulated through excise tax policies, the findings regarding the relationship between alcohol price and alcohol consumption clearly are relevant for policym akers interested in reducing alcohol consumption and its adverse consequences. Indeed, Federal, State, and local governments have implemented many policies to combat alcohol abuse in the past two decades (see sidebar).

One policy that has largely been ignored, however, is an increase in the monetary price of alcohol, which could be achieved by raising taxes on alcoholic beverages. At least in part as a result of this stability of Federal, State, and local alcoholic beverage taxes, the real prices of alcoholic beverages (i.e., the prices after accounting for the effects of inflation) have declined significantly over time. For example, between 1975 and 1990, the real price of distilled spirits fell by 32 percent, the real price of wine fell by 28 percent, and the real price of beer fell by 20 percent. (1) A Federal tax increase in 1991 only temporarily reversed this trend. If alcohol use and abuse are sensitive to price, as economists have found, however, a decrease in the real value of alcoholic beverage taxes and, consequently, prices will exacerbate the problems associated with alcohol use and abuse. Governments may be reluctant to increase taxes to discourage alcohol abuse, however, because the increased taxes raise pric es not only for alcohol abusers but also for light and moderate drinkers who do not abuse alcohol and therefore do not need to be discouraged from drinking. (For more detailed discussion of the appropriate level of alcohol taxation in this context, see Pogue and Sgontx 1989; Saffer and Chaloupka 1994.)

This article reviews studies that have analyzed the effects of price increases on alcohol consumption and its adverse consequences. After discussing some analytical considerations, the article focuses on the effects of alcohol prices and taxes on consumption by youths and young adults. It then considers the impacts of prices and taxes on indicators of alcohol abuse, such as motor vehicle crashes, health effects, and violence and other crime, among drinkers of all ages, including youths and young adults. …

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