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Is utility additive? The case of alcohol

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  • Kenneth Clements
  • Wana Yang
  • Simon Zheng

Abstract

The hypothesis of additive utility (or preference independence) is often applied to the demand for broad aggregates. Recent testing provides some evidence favourable to the hypothesis, thus overturning the older results based on the standard asymptotic tests which are seriously biased against the null in small samples. Using data for seven countries and a variety of tests, this paper shows that preference independence also cannot be rejected for more narrowly defined commodities - beer, wine and spirits. The implications of the results for efficient taxation of alcoholic beverages are also explored.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 29 (1997)
Issue (Month): 9 ()
Pages: 1163-1167

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Handle: RePEc:taf:applec:v:29:y:1997:i:9:p:1163-1167

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References

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  1. Selvanathan, E A, 1991. "Further Results on Aggregation of Differential Demand Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(4), pages 799-805, July.
  2. Barnett, William A, 1979. "Theoretical Foundations for the Rotterdam Model," Review of Economic Studies, Wiley Blackwell, vol. 46(1), pages 109-30, January.
  3. Clements, Kenneth W & Selvanathan, Saroja, 1994. "Understanding Consumption Patterns," Empirical Economics, Springer, vol. 19(1), pages 69-110.
  4. Taylor, Timothy G. & Shonkwiler, J. S. & Theil, Henri, 1986. "Monte Carlo and bootstrap testing of demand homogeneity," Economics Letters, Elsevier, vol. 20(1), pages 55-57.
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Citations

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Cited by:
  1. Rajaraman, Indira, 2007. "Impact of liquor taxation on consumption patterns in India," Journal of Policy Modeling, Elsevier, vol. 29(2), pages 195-207.
  2. Kenneth W. Clements & Xueyan Zhao, 2005. "Economic Aspects of Marijuana," Economics Discussion / Working Papers 05-28, The University of Western Australia, Department of Economics.
  3. Kuhl Teles, Vladimir & Arraes, Ronaldo A., 2009. "Environmental protection and economic growth," Textos para discussão 194, Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
  4. Rijo M John, 2005. "Price Elasticity Estimates for Tobacco and Other Addictive Goods in India," Microeconomics Working Papers 22395, East Asian Bureau of Economic Research.
  5. Jeffrey D. Kubik & John R. Moran, 2001. "Can Policy Changes Be Treated as Natural Experiments? Evidence from State Excise Taxes," Center for Policy Research Working Papers 39, Center for Policy Research, Maxwell School, Syracuse University.
  6. Nelson, Jon P., 2014. "Estimating the price elasticity of beer: Meta-analysis of data with heterogeneity, dependence, and publication bias," Journal of Health Economics, Elsevier, vol. 33(C), pages 180-187.
  7. Kenneth Clements, 2006. "Price Elasticities of Demand Are Minus One-half," Economics Discussion / Working Papers 06-14, The University of Western Australia, Department of Economics.
  8. Philip J. Cook & Jan Ostermann & Frank A. Sloan, 2005. "Are Alcohol Excise Taxes Good For Us? Short and Long-Term Effects on Mortality Rates," NBER Working Papers 11138, National Bureau of Economic Research, Inc.
  9. Ramful, Preety & Zhao, Xueyan, 2006. "Heterogeneity in Alcohol Consumption: The Case of Beer, Wine and Spirits in Australia," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25359, International Association of Agricultural Economists.
  10. E. A. Selvanathan & S. Selvanathan, 2004. "Economic and demographic factors in Australian alcohol demand," Applied Economics, Taylor & Francis Journals, vol. 36(21), pages 2405-2417.
  11. Fleissig, Adrian R. & Whitney, Gerald A., 2007. "Testing additive separability," Economics Letters, Elsevier, vol. 96(2), pages 215-220, August.
  12. Clements, Kenneth W., 2004. "Three facts about marijuana prices," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 48(2), June.
  13. Parry, Ian W.H. & Laxminarayan, Ramanan & West, Sarah E., 2006. "Fiscal and Externality Rationales for Alcohol Taxes," Discussion Papers dp-06-51, Resources For the Future.
  14. Yana Roshchina, 2013. "To drink or not to drink: the microeconomic analysis of alcohol consumption in Russia in 2006-2010," HSE Working papers WP BRP 20/SOC/2013, National Research University Higher School of Economics.
  15. Benjamin Volland, 2013. "The History of an Inferior Good: Beer Consumption in Germany," Papers on Economics and Evolution 2012-19, Philipps University Marburg, Department of Geography.
  16. Saroja Selvanathan & E. A. Selvanathan, 2005. "Is utility additive? Further evidence," Applied Economics, Taylor & Francis Journals, vol. 37(1), pages 83-86.
  17. Fogarty, James Joseph & Jakeman, Guy, 2011. "Wine tax reform: The impact of introducing a volumetric excise tax for wine," Working Papers 108667, University of Western Australia, School of Agricultural and Resource Economics.
  18. Sijbren Cnossen, 2006. "Alcohol Taxation and Regulation in the European Union," CESifo Working Paper Series 1821, CESifo Group Munich.

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