Sin Taxes: Do Heterogeneous Responses Undercut Their Value?
AbstractThis paper estimates the price elasticity of demand for alcohol using Health and Retirement Survey data. To account for unobserved heterogeneity in price responsiveness, we use finite mixture models. We recover two latent groups, one is significantly responsive to price but the other is unresponsive. Differences between these two groups can be explained in part by the behavioral factors of risk aversion, financial planning horizon, forward looking and locus of control. These results have policy implications. Only a subgroup responds significantly to price. Importantly, the unresponsive group drinks more heavily, suggesting that a higher price could fail to curb drinking by those most likely to cause negative externalities. In contrast, those least likely to impose costs on others are more responsive, thus suffering greater deadweight loss yet with less prevention of negative externalities.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15124.
Date of creation: Jul 2009
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Find related papers by JEL classification:
- I1 - Health, Education, and Welfare - - Health
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-11 (All new papers)
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- Henry Saffer & Dhaval Dave & Michael Grossman, 2012. "Behavioral Economics and the Demand for Alcohol: Results from the NLSY97," NBER Working Papers 18180, National Bureau of Economic Research, Inc.
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