The Effects of Tax Policy on Alcoholic Beverage Trends and Alcohol Demand in Japan

Abstract

This paper examines the evolution of alcoholic beverage sectors and the effects of tax policies on these sectors as well as the alcohol beverage demand systems in Japan utilising data from 1948 to 2011. In tax policy analyses, liquor tax policies are found to have differential effects on the production and consumption of different types of alcohol. Although sectoral growth and general economic performance in terms of final consumption expenditure per capita are found to be significant, with major positive effects, tax rates are found to have mixed effects, depending on the type of alcohol considered. The analyses suggest that preferential tax rates may be beneficial for boosting the sectoral performance of certain types of alcoholic beverages. The results, based on double-log and demand system equation estimations for five types of alcoholic beverages, suggest that all alcoholic beverages, except for shōchu, are normal goods with positive expenditure elasticities. Although the results suggest that shōchu may be the safest taxable subject in a Ramsey sense, the own-price elasticity estimates provide less coherent results depending on the model applied.