Estimating the price elasticity of beer: meta-analysis of data with heterogeneity, dependence, and publication bias

Prices, taxes and alcohol use: a systematic umbrella review

AIM

To measure the impact of taxes and prices on alcohol use with particular attention to the different context of rising alcohol consumption in low- and middle-income countries.

METHODS

Systematic review: we searched MEDLINE, Embase, EconLit and LILACS, grey literature, hand-searched five specialty journals and examined references of relevant studies. We considered all reviews that included studies that quantitatively examined the relationship between alcohol prices or taxes and alcohol use. At least two reviewers independently screened the articles and extracted the characteristics, methods and main results and assessed the quality of each included study. We identified 30 reviews.

RESULTS

There was overwhelming evidence that higher alcohol prices and taxes were associated with lower total alcohol consumption and that price responsiveness varied by beverage type. Total own-price elasticities of alcohol demand were consistently negative and substantial enough to be policy meaningful; total own-price elasticities for beer, wine and spirits were found to be approximately -0.3, -0.6 and -0.65. Reviews generally concluded that higher taxes and prices were associated with lower heavy episodic drinking and heavy drinking, although the magnitude of these associations was generally unclear. Reviews provided no evidence that alcohol price responsiveness differed by socioeconomic status, mixed and contradictory evidence with respect to age and sex and limited evidence that price responsiveness in low- and middle-income countries was approximately the same as in high-income countries.

CONCLUSIONS

Taxes are effective in reducing alcohol use. Moreover, increasing the price of alcohol by increasing taxes can also be expected to increase tax revenue, because the demand for alcohol is most certainly inelastic.

Role of alcohol taxes in moderating alcohol consumption: Current and future potential impacts

INTRODUCTION

There is a substantial literature on the price elasticity of demand for alcoholic beverages, but the literature on the tax elasticity and the way tax rates impact the evolution of alcohol consumption through time is more limited.

METHODS

A two-level Bayesian hierarchical model is used to estimate tax and income elasticity values. The estimates from five different forecast methods are then averaged, and combined with the tax elasticity estimate, to investigate consumption for different scenarios. The sample consists of 30 high-income and upper-middle-income countries.

RESULTS

The alcohol tax elasticity estimate is approximately -0.4 and the alcohol income elasticity estimate approximately 0.2. If alcohol taxes evolve the way they have in the past, there is little evidence to suggest that per capita alcohol consumption will be higher in 2027, relative to 2017; but if alcohol taxes remain constant over the next decade, it is likely that per capita alcohol consumption will be notably higher in 2027, relative to 2017, for the sample of countries considered.

DISCUSSION AND CONCLUSIONS

There is a natural tendency for alcohol consumption to increase with income. A working rule of thumb that can be used by policy makers to mitigate this effect is to increase alcohol tax rates at approximately half the long-run gross national income growth rate. For rich countries, this implies annual increases of approximately 1.0-1.5% in alcohol taxes.

Minimum unit prices for alcohol

Minimum unit prices (MUPs) have been proposed on the grounds that they can reduce alcohol consumption of the heaviest drinkers, without significantly burdening moderate drinkers. This paper examines the case for MUPs in an optimal tax framework. Such a policy can improve welfare when two conditions are both satisfied. First, beverage quality and quantity should be substitutes. Second, there should be more distortion to consumption of cheaper alcohol than to more expensive varieties. The consequences of a MUP for the optimal corrective tax are explored with a calibrated numerical example. This example illustrates how the optimal tax rate might be higher when used in isolation, than when a MUP is also being used.

Assessing the impact of alcohol taxation on rates of violent victimization in a large urban area: an agent-based modeling approach

AIMS

To use simulation to estimate the impact of alcohol taxation on drinking, non-fatal violent victimization and homicide in New York City (NYC). We simulate the heterogeneous effects of alcohol price elasticities by income, level of consumption and beverage preferences, and examine whether taxation can reduce income inequalities in alcohol-related violence.

DESIGN

Agent-based modeling simulation.

SETTING

NYC, USA.

PARTICIPANTS

Adult population aged 18-64 years in the year 2000 in the 59 community districts of NYC. The population of 256 500 agents approximates a 5% sample of the NYC population.

MEASUREMENTS

Agents were parameterized through a series of rules that governed alcohol consumption and engagement in violence. Six taxation interventions were implemented based on extensive reviews and meta-analyses, increasing universal alcohol tax by 1, 5 and 10%, and beer tax by 1, 5 and 10%.

FINDINGS

Under no tax increase, approximately 12.2% [95% credible interval (prediction interval, PI) = 12.1-12.3%] were heavy drinkers. Taxation decreased the proportion of heavy drinkers; a 10% tax decreased heavy drinking to 9.6% (95% PI = 9.4-9.8). Beer taxes had the strongest effect on population consumption. Taxation influenced those in the lowest income groups more than the highest income groups. Alcohol-related homicide decreased from 3.22 per 100 000 (95% PI = 2.50-3.73) to 2.40 per 100 000 under a 10% universal tax (95% PI = 1.92-2.94). This translates into an anticipated benefit of ~1200 lives/year.

CONCLUSION

Reductions in alcohol consumption in a large urban environment such as New York City can be sustained with modest increases in universal taxation. Alcohol tax increases also have a modest effect on alcohol-related violent victimization. Taxation policies reduce income inequalities in alcohol-related violence.

Decreases in global beer supply due to extreme drought and heat

Beer is the most popular alcoholic beverage in the world by volume consumed, and yields of its main ingredient, barley, decline sharply in periods of extreme drought and heat. Although the frequency and severity of drought and heat extremes increase substantially in range of future climate scenarios by five Earth System Models, the vulnerability of beer supply to such extremes has never been assessed. We couple a process-based crop model (decision support system for agrotechnology transfer) and a global economic model (Global Trade Analysis Project model) to evaluate the effects of concurrent drought and heat extremes projected under a range of future climate scenarios. We find that these extreme events may cause substantial decreases in barley yields worldwide. Average yield losses range from 3% to 17% depending on the severity of the conditions. Decreases in the global supply of barley lead to proportionally larger decreases in barley used to make beer and ultimately result in dramatic regional decreases in beer consumption (for example, -32% in Argentina) and increases in beer prices (for example, +193% in Ireland). Although not the most concerning impact of future climate change, climate-related weather extremes may threaten the availability and economic accessibility of beer.

What happens to drinking when alcohol policy changes? A review of five natural experiments for alcohol taxes, prices, and availability

Natural experiments are an important alternative to observational and econometric studies. This paper provides a review of results from empirical studies of alcohol policy interventions in five countries: Denmark, Finland, Hong Kong, Sweden, and Switzerland. Major policy changes were removal of quotas on travelers' tax-free imports and reductions in alcohol taxes. A total of 29 primary articles are reviewed, which contain 35 sets of results for alcohol consumption by various subpopulations and time periods. For each country, the review summarizes and examines: (1) history of tax/quota policy interventions and price changes; (2) graphical trends for alcohol consumption and liver disease mortality; and (3) empirical results for policy effects on alcohol consumption and drinking patterns. We also compare cross-country results for three select outcomes-binge drinking, alcohol consumption by youth and young adults, and heavy consumption by older adults. Overall, we find a lack of consistent results for consumption both within- and across-countries, with a general finding that alcohol tax interventions had selective, rather than broad, impacts on subpopulations and drinking patterns. Policy implications of these findings are discussed.