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Disaggregated econometric estimation of consumer demand response by alcoholic beverage types

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Listed:
  • Preety Srivastava
  • Keith R. McLaren
  • Michael Wohlgenant
  • Xueyan Zhao

Abstract

type="main" xml:id="ajar12095-abs-0001"> The paper presents estimates of price elasticities of demand for 12 disaggregated alcoholic beverages in Australia: premium beer, full strength beer, low alcohol beer and mid-strength beer; red bottled wine, white bottled wine, sparkling wine, cask wine; dark and light ready-to-drink (RTD); and dark and light spirits. These disaggregated categories correspond closely to the commodities of interest to public policymakers with respect to taxation and health policies. The system of demand equations is estimated with Nielsen's data using a semiflexible Almost Ideal Demand System model in order to impose negative semi-definiteness on the demand parameters. Results indicate elastic own-price elasticities for virtually all commodities. Cross-price elasticities suggest that beverages most linked with negative externalities, namely full strength beer, dark RTD and dark spirits, may need to be taxed jointly. Any proposed tax increase to cask wine may also result in consumers shifting demand to more undesirable beverages. The elasticity estimates are used to illustrate the effect of a hypothetical change towards taxation equalisation based on alcohol content. These elasticities offer crucially needed inputs for analysing any tax change policies.

Suggested Citation

  • Preety Srivastava & Keith R. McLaren & Michael Wohlgenant & Xueyan Zhao, 2015. "Disaggregated econometric estimation of consumer demand response by alcoholic beverage types," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 59(3), pages 412-432, July.
    • Handle: RePEc:bla:ajarec:v:59:y:2015:i:3:p:412-432
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    File URL: http://hdl.handle.net/10.1111/ajar.2015.59.issue-3
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    1. repec:lic:licosd:40118 is not listed on IDEAS
    2. Kym Anderson & Giulia Meloni & Johan Swinnen, 2019. "Global Alcohol Markets: Evolving Consumption Patterns, Regulations, and Industrial Organizations," World Scientific Book Chapters, in: Kym Anderson (ed.), The International Economics of Wine, chapter 26, pages 671-712, World Scientific Publishing Co. Pte. Ltd..
    3. Anderson, Kym, 2020. "Consumer Taxes on Alcohol: An International Comparison over Time," Journal of Wine Economics, Cambridge University Press, vol. 15(1), pages 42-70, February.
    4. Preety Srivastava & Ou Yang & Xueyan Zhao, 2022. "Equal Tax for Equal Alcohol? Beverage Types and Antisocial and Unlawful Behaviours," The Economic Record, The Economic Society of Australia, vol. 98(323), pages 354-372, December.
    5. Samira Rousselière & Gaëlle Petit & Thomas Coisnon & Anne Musson & Damien Rousselière, 2022. "A few drinks behind—Alcohol price and income elasticities in Europe: A microeconometric note," Journal of Agricultural Economics, Wiley Blackwell, vol. 73(1), pages 301-315, February.

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