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Alternative Panel Estimates of Alcohol Demand, Taxation, and the Business Cycle


  • Donald G. Freeman


This paper uses a new technique of estimating dynamic heterogeneous panels developed by Pesaran, Shin, and Smith (1999) on state-level alcohol consumption as a function of income, taxes, and cyclical variables. Pooled mean group (PMG) estimators provide an alternative to extremes of pooling the data assuming slope homogeneity and estimating individual states assuming complete heterogeneity. Postsample tests indicate that a conventional fixed-effects model outperforms both the PMG estimator and individual state estimators, despite the heterogeneity of the sample. Current levels of taxation appear to have little effect on alcohol consumption, and alcohol is found to be a procyclical good.

Suggested Citation

  • Donald G. Freeman, 2000. "Alternative Panel Estimates of Alcohol Demand, Taxation, and the Business Cycle," Southern Economic Journal, Southern Economic Association, vol. 67(2), pages 325-344, July.
  • Handle: RePEc:sej:ancoec:v:67:2:y:2000:p:325-344

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    References listed on IDEAS

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    2. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, vol. 31(1), pages 93-118, February.
    3. Tauchen, Helen V & Witte, Ann Dryden & Long, Sharon K, 1991. "Domestic Violence: A Nonrandom Affair," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(2), pages 491-511, May.
    4. Ornstein, Stanley I & Hanssens, Dominique M, 1985. " Alcohol Control Laws and the Consumption of Distilled Spirits and Beer," Journal of Consumer Research, Oxford University Press, vol. 12(2), pages 200-213, September.
    5. Helen V. Tauchen & Ann Dryden Witte & Sharon K. Long, 1985. "Domestic Violence: A Non-random Affair," NBER Working Papers 1665, National Bureau of Economic Research, Inc.
    6. Sara Markowitz & Michael Grossman, 1998. "The Effects of Alcohol Regulation on Physical Child Abuse," NBER Working Papers 6629, National Bureau of Economic Research, Inc.
    7. Sara Markowitz & Michael Grossman, 1998. "Alcohol Regulation And Domestic Violence Towards Children," Contemporary Economic Policy, Western Economic Association International, vol. 16(3), pages 309-320, July.
    8. Kenkel, Donald S, 1993. "Drinking, Driving, and Deterrence: The Effectiveness and Social Costs of Alternative Policies," Journal of Law and Economics, University of Chicago Press, vol. 36(2), pages 877-913, October.
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    Cited by:

    1. Ruhm, Christopher J. & Jones, Alison Snow & McGeary, Kerry Anne & Kerr, William C. & Terza, Joseph V. & Greenfield, Thomas K. & Pandian, Ravi S., 2012. "What U.S. data should be used to measure the price elasticity of demand for alcohol?," Journal of Health Economics, Elsevier, vol. 31(6), pages 851-862.
    2. Don Freeman, 2009. "Beer in Good Times and Bad: A U.S. State-Level Analysis of Economic Conditions and Alcohol Consumption," Working Papers 0906, Sam Houston State University, Department of Economics and International Business.
    3. repec:eee:irlaec:v:50:y:2017:i:c:p:15-24 is not listed on IDEAS
    4. 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.
    5. Prema-chandra Athukorala & Fahad Hassan Khan, 2014. "Global production sharing and the measurement of price elasticities in international trade," Departmental Working Papers 2014-22, The Australian National University, Arndt-Corden Department of Economics.
    6. Gour Gobinda Goswami & Sadaquat Junayed, 2006. "Pooled Mean Group Estimation of the Bilateral Trade Balance Equation: USA vis-a-vis her Trading Partners," International Review of Applied Economics, Taylor & Francis Journals, vol. 20(4), pages 515-526.
    7. Mark W. Frank, 2005. "Income Inequality and Economic Growth in the U.S. :A Panel Cointegration Approach," Working Papers 0503, Sam Houston State University, Department of Economics and International Business.
    8. Resul Cesur & Inas Rashad Kelly, 2014. "Who Pays The Bar Tab? Beer Consumption And Economic Growth In The United States," Economic Inquiry, Western Economic Association International, vol. 52(1), pages 477-494, January.
    9. 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.
    10. Jon Nelson, 2013. "Meta-analysis of alcohol price and income elasticities – with corrections for publication bias," Health Economics Review, Springer, vol. 3(1), pages 1-10, December.
    11. Edward F. Blackburne III & Mark W. Frank, 2007. "Estimation of nonstationary heterogeneous panels," Stata Journal, StataCorp LP, vol. 7(2), pages 197-208, June.
    12. French, Michael Thomas & BrownTaylor, Didra & Bluthenthal, Ricky Neville, 2006. "Price elasticity of demand for malt liquor beer: Findings from a US pilot study," Social Science & Medicine, Elsevier, vol. 62(9), pages 2101-2111, May.

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