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The Effect of Liquor Taxes on Heavy Drinking

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  • Philip J. Cook
  • George Tauchen

Abstract

In this article we present the strongest evidence to date that chronic heavy drinkers' consumption is responsive to changes in the price of liquor. We estimate that an increase in the liquor excise tax by one dollar (1967 prices) per proof gallon reduces the liver cirrhosis mortality rate by 5.4% in the short run and by perhaps twice that amount in the long run. (The liver cirrhosis mortality rate is a reliable proxy for the prevalence of chronic excess consumption.) Our estimate is based on an analysis of covariance of annual state-level data, for a 16-year panel of 30 states, with state excise taxes and per capita income as the covariates. Of course, our estimate is not sufficient to determine whether an increase in the liquor tax is worthwhile, much less to determine an "optimal" tax. It is, however, an important datum for making these determinations.

Suggested Citation

  • Philip J. Cook & George Tauchen, 1982. "The Effect of Liquor Taxes on Heavy Drinking," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 379-390, Autumn.
  • Handle: RePEc:rje:bellje:v:13:y:1982:i:autumn:p:379-390
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