Taxing Alcoholic Beverages

• Agricultural Economics Workshop
• Departmental Seminar

Date and Location

Thursday, April 14, 2016, 4:10 PM - 5:30 PM
ARE Library Conference Room, 4101 Social Sciences and Humanities

Abstract

The Government Accountability Office (GAO) has proposed increasing federal excise taxes on beer, wine, and spirits, which would be the first increase in federal taxes since 1991. This paper evaluates their proposal using a new framework for estimating the impact of excise taxes on alcoholic beverages. Past studies of demand for alcoholic beverages ignore the fact that alcohol is consumed both on-premise as well as off-premise. The demand framework is expanded to include demand for on-premise alcohol consumed as part of the demand system. In addition, off-premise alcohol purchased can be viewed as an input into production of on-premise alcohol so relationships for this production/consumption nexus are included in the model. Thus, a full accounting of tax changes on alcohol consumed both on-premise and off-premise is included in the analysis. Empirical results for the demand system are obtained using the Rotterdam model with USDOC monthly data from 19995-2014. The results show the GAO taxation proposal would mainly reduce beer consumption with little reduction in wine consumption but with spirit consumption actually increasing.