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The Great Recession and Consumer Demand for Alcohol: A Dynamic Panel-Data Analysis of US Households

Author

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  • Chad Cotti

    (Department of Economics, College of Business, University of Wisconsin Oshkosh)

  • Richard A. Dunn

    (Department of Agricultural and Resource Economics, College of Agriculture and Natural Resources; and Department of Economics, College of Liberal Arts and Sciences, University of Connecticut)

  • Chad Cotti

    (Department of Economics, Bates College)

Abstract

For those looking to design policies that mitigate the deleterious consequences of alcohol abuse, understanding how consumer demand for alcohol responds to changes in the local economic conditions is of great importance. We use high-frequency purchase data from a large panel of US households between 2004 and 2011 to examine how alcohol demand changes over the business cycle in a dynamic panel-data estimation framework. We find strong evidence that demand for packaged alcohol is procyclical. Changes in the state-level unemployment rate and personal per capita income between the most recent business cycle peak and trough imply a 6.5 percent decrease in the demand for packaged alcohol (ethanol by volume). The results also show that the decline in alcohol expenditures is primarily due to a decrease in quantity rather than an overall decrease in the price per ounce of ethanol purchased. Moreover, we improve on the related literature methodologically by accounting for consumption dynamics, as long-run demand for alcohol may differ from short-run demand because of habit formation in the quantity and type of alcohol consumed. Our results also indicate that failing to account for consumption dynamics will tend to understate the long-run association between macroeconomic conditions and alcohol demand.

Suggested Citation

  • Chad Cotti & Richard A. Dunn & Chad Cotti, 2015. "The Great Recession and Consumer Demand for Alcohol: A Dynamic Panel-Data Analysis of US Households," American Journal of Health Economics, University of Chicago Press, vol. 1(3), pages 297-325, Summer.
    • Handle: RePEc:ucp:amjhec:v:1:y:2015:i:3:p:297-325
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    Cited by:

    1. Chen Zhen & Mary Muth & Abigail Okrent & Shawn Karns & Derick Brown & Peter Siegel, 2019. "Do differences in reported expenditures between household scanner data and expenditure surveys matter in health policy research?," Health Economics, John Wiley & Sons, Ltd., vol. 28(6), pages 782-800, June.
    2. Wang, Huixia & Wang, Chenggang & Halliday, Timothy J., 2018. "Health and health inequality during the great recession: Evidence from the PSID," Economics & Human Biology, Elsevier, vol. 29(C), pages 17-30.
    3. Lizhong Peng & Jie Chen & Xiaohui Guo, 2022. "Macroeconomic conditions and health‐related outcomes in the United States: A metropolitan and micropolitan statistical area‐level analysis between 2004 and 2017," Health Economics, John Wiley & Sons, Ltd., vol. 31(1), pages 3-20, January.
    4. Chenggang Wang & Huixia Wang & Timothy J. Halliday, 2017. "Health and Health Inequality during the Great Recession: Evidence from the PSID," Working Papers 201703, University of Hawaii at Manoa, Department of Economics.
    5. De, Prabal K. & Segura-Escano, Raul, 2021. "Drinking during downturn: New evidence from the housing market fluctuations in the United States during the Great Recession," Economics & Human Biology, Elsevier, vol. 43(C).
    6. Carpenter, Christopher S. & McClellan, Chandler B. & Rees, Daniel I., 2017. "Economic conditions, illicit drug use, and substance use disorders in the United States," Journal of Health Economics, Elsevier, vol. 52(C), pages 63-73.
    7. Watson, Philip & Winfree, Jason & Toro-González, Daniel, . "Fiscal Impacts and Cross-Border Effects of a Change in State Liquor Policy," Journal of Food Distribution Research, Food Distribution Research Society, vol. 51(2).

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    More about this item

    Keywords

    alcohol abuse; consumer demand; consumption dynamics;
    All these keywords.

    JEL classification:

    • I10 - Health, Education, and Welfare - - Health - - - General
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • D10 - Microeconomics - - Household Behavior - - - General

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