Price and Tax Effect on Consumption of Alcoholic Beverages

Abstract

Price is a key determinant for access to and consumption of alcoholic beverages. Alcohol prices are determined by a range of factors and the most prominent factors are levels of taxation (excise duties and value added tax). Taxation is a key lever and blunt tool for governments to influence alcohol prices, and has been shown to be an effective instrument for reducing alcohol consumption and alcohol-related harms. This research study evidence to demonstrate that the sale of alcoholic beverages are price responsive and also different populations have established different patterns of belief and behaviour with respect to changes in price of alcoholic beverages and their impact on consumption. From an economic perspective, alcoholic beverages are consumer goods, and therefore, what is known about consumer behavior in general is likely to be seen in alcohol consumption also. The economic model of consumers’ behavior is that, other things being equal, consumers demand for a given commodity falls when its price rises and vice versa. That is, a rise in the price of alcoholic beverages due to increases in production costs, profits, and/or taxation results in reduced per capita consumption and conversely, a reduction in price results in an increase in consumption. There is strong and consistent evidence demonstrates that, increase in the price of alcohol is associated with reduced consumption at a population level. Access to cheap alcohol has been found to correlate with increased total alcohol consumption. The present study has determined and the evidence which indicated that, in general, the way drinkers respond to changes in the price of alcohol, that increases in the total price of alcohol can reduce drinking and a rise in the price and tax result in reduced per capita alcohol consumption. The testing of two hypotheses complement each other and provide a richer and more complete understanding of the nature of price and tax effects on consumption of alcoholic beverages.