Abstract
In this study, we estimate final demand for beverages with a particular focus on alcoholic beverages and calculate elasticities using microdata from the Swiss household expenditure survey from 2000 to 2009, which containsdata from more than 34,000 households. We estimate price and income responses for three household segments — light, moderate, and heavy drinking households — to assess whether higher alcohol consumption could be described by different price and income elasticities in comparison to lower alcohol consumption. We obtain unconditional estimates by applying a two-stage budgeting quadratic almost ideal demand system. To generate missing price data, we used the recently proposed quality adjusted price approach. Due to a high share of zero consumption for some beveragescategories,we correct the model with a two-step estimation procedure. Estimation results show that heavy drinking households are much less price elastic with respect to wine and beer in comparison to moderate or light drinking households, while the price response for spirits is almost constant over the three segments. Before implementing a new tax for alcoholic beverages in Switzerland, the social, health, and economic effects of a rather small decrease in alcohol consumption among heavy drinking households must be weighed against possible negativeconsequences of a sharp decline in light or moderate drinking households.
Highlights
Knowledge about the determinants of consumption of alcoholic beverages and the price and income elasticity of different consumer segments is highly relevant to policy decisions
One of the most important criteria is the approximation of non-linear Engel curves, which is best satisfied by the quadratic version of the AIDS (QUAIDS) and allows general income responses that are not captured by the almost ideal demand system (AIDS) or many other models
The QUAIDS has already been successfully applied to the Swiss household expenditure survey
Summary
Knowledge about the determinants of consumption of alcoholic beverages and the price and income elasticity of different consumer segments is highly relevant to policy decisions. There is consensus that excessive alcohol consumption can be detrimental to health in that it can lead to liver cancer, liver disease, higher blood pressure, stroke, or mental decline (Rehn et al 2001; Schwartz et al 2013; Sabia et al 2014). One of the most important criteria is the approximation of non-linear Engel curves, which is best satisfied by the QUAIDS and allows general income responses that are not captured by the AIDS or many other models. The QUAIDS model is a rank three demand system and satisfies the axioms of choice. It allows exact aggregation over consumers due to underlying preferences that are of the generalized Gorman polar form (Banks et al 1997; Blackorby et al 1978). The QUAIDS has already been successfully applied to the Swiss household expenditure survey (see e.g., Abdulai 2002)
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
