IDEAS home Printed from https://ideas.repec.org/p/msh/ebswps/2014-5.html
   My bibliography  Save this paper

Econometric Modelling of Price Response by Alcohol Types to Inform Alcohol Tax Policies

Author

Listed:
  • Preety Srivastava

    ()

  • Keith R. McLaren

    ()

  • Michael Wohlgenant

    ()

  • Xueyan Zhao

    ()

Abstract

The paper presents estimates of price elasticities of demand for twelve disaggregated alcohol beverages in Australia: premium beer, full strength beer, low alcohol beer, and mid strength beer; red bottled wine, white bottled wine, sparkling wine, cask wine, and dark and light ready-to-drink (RTD); and dark and light spirits. These disaggregated categories correspond closely to the commodities of interest to public policymakers with respect to taxation and health policies. The system of demand equations is estimated with Nielsen data from Australia using the semiflexible AIDS model in order to impose negative semidefiniteness on the demand parameters. Results indicate elastic own-price elasticities for virtually all commodities. Morishma elasticities of substitution indicate premium beer, mid strength beer, and cask wine exhibit the largest elasticities of substitution. Low alcohol beer, light RTD, and light spirits show the lowest substitution. The elasticity estimates are used to illustrate the effect of a change in the current tax system toward taxation equalisation based on alcohol content. The policy simulation highlights the importance of having a complete system of demand elasticities because the mix of consumption of alcohol beverages changes in response to the type of alcohol policy.

Suggested Citation

  • Preety Srivastava & Keith R. McLaren & Michael Wohlgenant & Xueyan Zhao, 2014. "Econometric Modelling of Price Response by Alcohol Types to Inform Alcohol Tax Policies," Monash Econometrics and Business Statistics Working Papers 5/14, Monash University, Department of Econometrics and Business Statistics.
  • Handle: RePEc:msh:ebswps:2014-5
    as

    Download full text from publisher

    File URL: http://business.monash.edu/econometrics-and-business-statistics/research/publications/ebs/wp05-14.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Moschini, Giancarlo, 1998. "The semiflexible almost ideal demand system," European Economic Review, Elsevier, vol. 42(2), pages 349-364, February.
    2. repec:adr:anecst:y:1994:i:34 is not listed on IDEAS
    3. Jerry Hausman & Gregory Leonard & J. Douglas Zona, 1994. "Competitive Analysis with Differentiated Products," Annals of Economics and Statistics, GENES, issue 34, pages 143-157.
    4. Clements, Kenneth W & Johnson, Lester W, 1983. "The Demand for Beer, Wine, and Spirits: A Systemwide Analysis," The Journal of Business, University of Chicago Press, vol. 56(3), pages 273-304, July.
    5. Preety Ramful & Xueyan Zhao, 2008. "Individual Heterogeneity in Alcohol Consumption: The Case of Beer, Wine and Spirits in Australia," The Economic Record, The Economic Society of Australia, vol. 84(265), pages 207-222, June.
    6. Diewert, Walter E & Wales, Terence J, 1987. "Flexible Functional Forms and Global Curvature Conditions," Econometrica, Econometric Society, vol. 55(1), pages 43-68, January.
    7. Gallet, Craig A., 2007. "The demand for alcohol: a meta-analysis of elasticities," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 51(2), June.
    8. Blackorby, Charles & Russell, R Robert, 1989. "Will the Real Elasticity of Substitution Please Stand Up? (A Comparison of the Allen/Uzawa and Morishima Elasticities)," American Economic Review, American Economic Association, vol. 79(4), pages 882-888, September.
    9. Alain Carpentier & Hervé Guyomard, 2001. "Unconditional Elasticities in Two-Stage Demand Systems: An Approximate Solution," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(1), pages 222-229.
    10. Kenneth W. Clements & Saroja Selvanathan, 1991. "The Economic Determinants Of Alcohol Consumption," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 35(2), pages 209-231, August.
    11. Preety Srivastava & Xueyan Zhao, 2010. "What Do the Bingers Drink? Micro-Unit Evidence on Negative Externalities and Drinker Characteristics of Alcohol Consumption by Beverage Types," Economic Papers, The Economic Society of Australia, vol. 29(2), pages 229-250, June.
    12. 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.
    13. Ramful, Preety & Zhao, Xueyan, 2006. "Heterogeneity in Alcohol Consumption: The Case of Beer, Wine and Spirits in Australia," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25359, International Association of Agricultural Economists.
    14. Nelson, Jon P, 1997. "Economic and Demographic Factors in U.S. Alcohol Demand: A Growth-Accounting Analysis," Empirical Economics, Springer, vol. 22(1), pages 83-102.
    15. James, Jennifer S. & Alston, Julian M., 2002. "Taxes and quality: A market-level analysis," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 46(3), September.
    16. Brian P. Poi, 2008. "Demand-system estimation: Update," Stata Journal, StataCorp LP, vol. 8(4), pages 554-556, December.
    17. Berndt, Ernst R & Savin, N Eugene, 1975. "Estimation and Hypothesis Testing in Singular Equation Systems with Autoregressive Disturbances," Econometrica, Econometric Society, vol. 43(5-6), pages 937-957, Sept.-Nov.
    18. Moschini, GianCarlo, 1998. "Semiflexible Almost Ideal Demand System, The," Staff General Research Papers Archive 1193, Iowa State University, Department of Economics.
    19. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-326, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Karel Janda & Zuzana Lajksnerova & Jakub Mikolasek, 2018. "A General Equilibrium Model of Optimal Alcohol Taxation in the Czech Republic," Working Papers IES 2018/08, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Mar 2018.

    More about this item

    Keywords

    alcohol; demand system; elasticities; semiflexible AIDS; tax.;

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • I1 - Health, Education, and Welfare - - Health

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:msh:ebswps:2014-5. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dr Xibin Zhang) or (Joanne Lustig). General contact details of provider: http://edirc.repec.org/data/dxmonau.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.