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A Dynamic Demand Model for Liquor: The Case for Pooling

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  • Baltagi, Badi H
  • Griffin, James M

Abstract

This paper estimates a dynamic demand model for liquor in the United States using panel data from 43 states. Because of taste changes over time and between states in liquor consumption, purely time series or cross sectional studies do not elicit reliable price elasticity estimates. This study makes the case for pooling and shows how one can control for individual state effects and endogeneity of the regressors using estimators suited for a dynamic demand model. Our results indicate that the long-run price elasticity is in the -0.7 range. The findings also support strong habit persistence, a small positive income elasticity, and very weak evidence of bootlegging from adjoining states. The magnitude of the long-run price effect suggests that sin taxes can serve not only as an important income source but also as a significant deterrent effect. Copyright 1995 by MIT Press.

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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics & Statistics.

Volume (Year): 77 (1995)
Issue (Month): 3 (August)
Pages: 545-54

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Handle: RePEc:tpr:restat:v:77:y:1995:i:3:p:545-54

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Web page: http://mitpress.mit.edu/journals/

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Cited by:
  1. Friberg, Richard & Asplund, Marcus & Wilander, Fredrik, 2005. "Demand and Distance: Evidence on Cross-Border Shopping," Working Paper Series in Economics and Finance, Stockholm School of Economics 587, Stockholm School of Economics.
  2. West, Sara E. & Parry, Ian W.H., 2009. "Alcohol-Leisure Complementarity: Empirical Estimates and Implications for Tax Policy," National Tax Journal, National Tax Association, National Tax Association, vol. 62(4), pages 611-33, December.
  3. Chiou, Lesley & Muehlegger, Erich, 2008. "Crossing the Line: The Effect of Cross Border Cigarette Sales on State Excise Tax Revenues," Working Paper Series, Harvard University, John F. Kennedy School of Government rwp08-012, Harvard University, John F. Kennedy School of Government.
  4. Giovanni BUSETTA & Dario CORSO, 2008. "La legge di Okun: asimmetrie e differenziali territoriali in Italia," Working Papers, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali 320, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
  5. Baltagi, Badi H. & Li, Dong, 2000. "Double-length regressions for the Box-Cox difference model with heteroskedasticity or autocorrelation," Economics Letters, Elsevier, Elsevier, vol. 69(1), pages 9-14, October.
  6. Angulo, Ana Maria & Gil, Jose Maria & Mur, Jesus, 2002. "Spanish Demand for Food Away From Home: A Panel Data Approach," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain, European Association of Agricultural Economists 24977, European Association of Agricultural Economists.
  7. Dinda, Soumyananda & Coondoo, Dipankor, 2006. "Income and emission: A panel data-based cointegration analysis," Ecological Economics, Elsevier, Elsevier, vol. 57(2), pages 167-181, May.
  8. Badi Baltagi & Dong Li, 2006. "Prediction in the Panel Data Model with Spatial Correlation: the Case of Liquor," Spatial Economic Analysis, Taylor & Francis Journals, Taylor & Francis Journals, vol. 1(2), pages 175-185.
  9. Angulo, Ana María & Gil, José María & Mur, Jesús & Dhehibi, Boubaker, 2000. "The Effect Of Households Location On The Spanish Demand For Food: A Panel Data Approach," ERSA conference papers, European Regional Science Association ersa00p124, European Regional Science Association.
  10. Jon Nelson, 2003. "Advertising Bans, Monopoly, and Alcohol Demand: Testing for Substitution Effects using State Panel Data," Review of Industrial Organization, Springer, Springer, vol. 22(1), pages 1-25, February.
  11. Parry, Ian W.H. & Laxminarayan, Ramanan & West, Sarah E., 2006. "Fiscal and Externality Rationales for Alcohol Taxes," Discussion Papers, Resources For the Future dp-06-51, Resources For the Future.
  12. Lindsey, Robin & West, Douglas S., 2003. "Predatory pricing in differentiated products retail markets," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 21(4), pages 551-592, April.
  13. Rinaldi, Gustavo, 2007. "The use of economic tools to develop a consensus on alcohol policies within and between jurisdictions," MPRA Paper 21941, University Library of Munich, Germany, revised 18 Apr 2007.
  14. Badi H. Baltagi & James M. Griffin, 2002. "Rational addiction to alcohol: panel data analysis of liquor consumption," Health Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 11(6), pages 485-491.
  15. Mustapha Abiodun Akinkunmi, . "Money Demand in Developing Countries: A Dynamic Panel Approach," Fordham Economics Dissertations, Fordham University, Department of Economics, Fordham University, Department of Economics, number 2004.1, spring.
  16. Evens SALIES, 2004. "The consumption of ordinary wines in France : the effect of administered prices," Econometrics, EconWPA 0406003, EconWPA.
  17. Badi H. Baltagi & Chihwa Kao, 2000. "Nonstationary Panels, Cointegration in Panels and Dynamic Panels: A Survey," Center for Policy Research Working Papers, Center for Policy Research, Maxwell School, Syracuse University 16, Center for Policy Research, Maxwell School, Syracuse University.
  18. Farrell, Susan & Manning, Willard G. & Finch, Michael D., 2003. "Alcohol dependence and the price of alcoholic beverages," Journal of Health Economics, Elsevier, Elsevier, vol. 22(1), pages 117-147, January.

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