Alcohol/Leisure Complementarity: Empirical Estimates and Implications for Tax Policy
This paper provides a first attempt to estimate the cross-price elasticity between alcoholic beverages and leisure, which is critical for assessing how much alcohol taxation might be warranted on fiscal grounds. We estimate an Almost Ideal Demand System defined over alcohol, leisure, and other goods, using data from the Consumer Expenditure Survey and other sources. Our results suggest that alcohol is a relative complement for leisure over a range of specifications. This implies that the optimal alcohol tax may substantially exceed the Pigouvian tax, reinforcing the efficiency case for higher taxation. These findings should be viewed as preliminary however, given a number of data and other limitations of the analysis.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gary S. Becker & Casey B. Mulligan, 1998.
"Deadweight Costs and the Size of Government,"
University of Chicago - George G. Stigler Center for Study of Economy and State
144, Chicago - Center for Study of Economy and State.
- Andreas Andrikopoulos & James Brox & Emanuel Carvalho, 1997. "The demand for domestic and imported alcoholic beverages in Ontario, Canada: a dynamic simultaneous equation approach," Applied Economics, Taylor & Francis Journals, vol. 29(7), pages 945-953.
- Ahmad, Ehtisham & Stern, Nicholas, 1984. "The theory of reform and indian indirect taxes," Journal of Public Economics, Elsevier, vol. 25(3), pages 259-298, December.
- Holm, Pasi, 1995. "Alcohol Content and Demand for Alcoholic Beverages: A System Approach," Empirical Economics, Springer, vol. 20(1), pages 75-92.
- Madden, David, 1995. "Labour Supply, Commodity Demand and Marginal Tax Reform," Economic Journal, Royal Economic Society, vol. 105(429), pages 485-97, March.
- Kenkel, Donald S, 1996. "New Estimates of the Optimal Tax on Alcohol," Economic Inquiry, Western Economic Association International, vol. 34(2), pages 296-319, April.
- Badi H. Baltagi & Rajeev K. Goel, 1990. "Quasi-Experimental Price Elasticity of Liquor Demand in the United States: 1960–83," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 72(2), pages 451-454.
- Young, Douglas J & Bieli´nska-Kwapisz, Agnieszka, 2002. "Alcohol Taxes and Beverage Prices," National Tax Journal, National Tax Association, vol. 55(N. 1), pages 57-73, March.
- Baltagi, Badi H & Griffin, James M, 1995. "A Dynamic Demand Model for Liquor: The Case for Pooling," The Review of Economics and Statistics, MIT Press, vol. 77(3), pages 545-54, August.
- Charles Ballard & John Goddeeris & Sang-Kyum Kim, 2005. "Non-Homothetic Preferences and the Non-Environmental Effects of Environmental Taxes," International Tax and Public Finance, Springer, vol. 12(2), pages 115-130, March.
- Blundell, Richard & Pashardes, Panos & Weber, Guglielmo, 1993. "What Do We Learn About Consumer Demand Patterns from Micro Data?," American Economic Review, American Economic Association, vol. 83(3), pages 570-97, June.
- West, Sarah E. & Williams III, Roberton C., 2007. "Optimal taxation and cross-price effects on labor supply: Estimates of the optimal gas tax," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 593-617, April.
- David Blake & Angelika Nied, 1997. "The demand for alcohol in the United Kingdom," Applied Economics, Taylor & Francis Journals, vol. 29(12), pages 1655-1672.
- Farrell, Susan & Manning, Willard G. & Finch, Michael D., 2003. "Alcohol dependence and the price of alcoholic beverages," Journal of Health Economics, Elsevier, vol. 22(1), pages 117-147, January.
- Dave, Dhaval & Kaestner, Robert, 2002.
"Alcohol taxes and labor market outcomes,"
Journal of Health Economics,
Elsevier, vol. 21(3), pages 357-371, May.
- Mullahy, John & Sindelar, Jody L, 1991. "Gender Differences in Labor Market Effects of Alcoholism," American Economic Review, American Economic Association, vol. 81(2), pages 161-65, May.
- Parry, Ian & Bento, Antonio, 1999.
"Tax deductions, environmental policy, and the"double dividend"hypothesis,"
Policy Research Working Paper Series
2119, The World Bank.
- Parry, Ian W. H. & Bento, Antonio M., 2000. "Tax Deductions, Environmental Policy, and the "Double Dividend" Hypothesis," Journal of Environmental Economics and Management, Elsevier, vol. 39(1), pages 67-96, January.
- Parry, Ian W.H. & Laxminarayan, Ramanan & West, Sarah E., 2006. "Fiscal and Externality Rationales for Alcohol Taxes," Discussion Papers dp-06-51, Resources For the Future.
- Lawrence H. Goulder & Roberton C. Williams III, 2003. "The Substantial Bias from Ignoring General Equilibrium Effects in Estimating Excess Burden, and a Practical Solution," Journal of Political Economy, University of Chicago Press, vol. 111(4), pages 898-927, August.
- Heckman, James, 2013.
"Sample selection bias as a specification error,"
Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
- Andrew B. Lyon & Robert M. Schwab, 1991.
"Consumption Taxes in a Life-Cycle Framework: Are Sin Taxes Regressive?,"
NBER Working Papers
3932, National Bureau of Economic Research, Inc.
- Lyon, Andrew B & Schwab, Robert M, 1995. "Consumption Taxes in a Life-Cycle Framework: Are Sin Taxes Regressive?," The Review of Economics and Statistics, MIT Press, vol. 77(3), pages 389-406, August.
- Jones, Andrew M, 1989. "A Systems Approach to the Demand for Alcohol and Tobacco," Bulletin of Economic Research, Wiley Blackwell, vol. 41(2), pages 85-105, April.
- Ian W.H. Parry & Wallace E. Oates, 2000. "Policy analysis in the presence of distorting taxes," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 19(4), pages 603-613.
- Ruhm, Christopher J., 1995.
"Economic conditions and alcohol problems,"
Journal of Health Economics,
Elsevier, vol. 14(5), pages 583-603, December.
- John Eakins & Liam Gallagher, 2003. "Dynamic almost ideal demand systems: an empirical analysis of alcohol expenditure in Ireland," Applied Economics, Taylor & Francis Journals, vol. 35(9), pages 1025-1036.
- Richard Blundell & Thomas MaCurdy, 1998.
"Labour supply: a review of alternative approaches,"
IFS Working Papers
W98/18, Institute for Fiscal Studies.
- Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
- Pogue, Thomas F & Sgontz, Larry G, 1989. "Taxing to Control Social Costs: The Case of Alcohol," American Economic Review, American Economic Association, vol. 79(1), pages 235-43, March.
- Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
- A. Lans Bovenberg & Lawrence H. Goulder, 2001.
"Environmental Taxation and Regulation,"
NBER Working Papers
8458, National Bureau of Economic Research, Inc.
- J. Scott Shonkwiler & Steven T. Yen, 1999. "Two-Step Estimation of a Censored System of Equations," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 972-982.
- Wildasin, David E, 1984. "On Public Good Provision with Distortionary Taxation," Economic Inquiry, Western Economic Association International, vol. 22(2), pages 227-43, April.
- W. J. Corlett & D. C. Hague, 1953. "Complementarity and the Excess Burden of Taxation," Review of Economic Studies, Oxford University Press, vol. 21(1), pages 21-30.
- W. Erwin Diewert & Denis A. Lawrence, 1996. "The Deadweight Costs of Taxation in New Zealand," Canadian Journal of Economics, Canadian Economics Association, vol. 29(s1), pages 658-73, April.
- Manning, Willard G. & Blumberg, Linda & Moulton, Lawrence H., 1995. "The demand for alcohol: The differential response to price," Journal of Health Economics, Elsevier, vol. 14(2), pages 123-148, June.
- Browning, Martin, 1991. "A Simple Nonadditive Preference Structure for Models of Household Behavior over Time," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 607-37, June.
- Browning, Edgar K, 1987. "On the Marginal Welfare Cost of Taxation," American Economic Review, American Economic Association, vol. 77(1), pages 11-23, March.
- Francis Vella, 1998. "Estimating Models with Sample Selection Bias: A Survey," Journal of Human Resources, University of Wisconsin Press, vol. 33(1), pages 127-169.
- Zarkin, Gary A. & French, Michael T. & Mroz, Thomas & Bray, Jeremy W., 1998. "Alcohol use and wages: New results from the national household survey on drug abuse," Journal of Health Economics, Elsevier, vol. 17(1), pages 53-68, January.
- Mullahy, John & Sindelar, Jody L, 1993. "Alcoholism, Work, and Income," Journal of Labor Economics, University of Chicago Press, vol. 11(3), pages 494-520, July.
- Phelps, Charles E., 1988. "Death and taxes : An opportunity for substitution," Journal of Health Economics, Elsevier, vol. 7(1), pages 1-24, March.
- repec:ubc:bricol:92-12 is not listed on IDEAS
When requesting a correction, please mention this item's handle: RePEc:rff:dpaper:dp-09-09. 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: (Webmaster)
If references are entirely missing, you can add them using this form.