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Estimating the Price Elasticity of Demand for Different Levels of Alcohol Consumption among Young Adults

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  • Vinish Shrestha

    (Emory University, Department of Economics)

Abstract

Understanding the effect of higher alcohol prices on alcohol demand according to one’s level of alcohol consumption is crucial while evaluating the effectiveness of using alcohol taxes as an alcohol-control medium. In this study, I estimate the differential responses to alcohol prices on alcohol demand for young adults by asking whether heavy drinkers are more responsive to higher alcohol prices than light and moderate drinkers. To conduct the analysis, I use the data from the National Longitudinal Survey of Youth (NLSY97) for the years 1997 to 2008. To answer the research question on hand, I implement three different econometric methods: (1) pooled quantile regression; (2) quantile regression for panel data; and (3) finite mixture models. Findings from these methods consistently suggest that heavy drinkers respond to higher alcohol prices by lowering their alcohol intake. Since alcohol-related externalities are likely to be caused by heavy drinkers, the results emphasize the possibility of higher alcohol taxes curbing alcohol-related externalities associated with young adults by lowering the alcohol consumption among the heavy drinkers.

Suggested Citation

  • Vinish Shrestha, 2015. "Estimating the Price Elasticity of Demand for Different Levels of Alcohol Consumption among Young Adults," American Journal of Health Economics, MIT Press, vol. 1(2), pages 224-254, Spring.
    • Handle: RePEc:tpr:amjhec:v:1:y:2015:i:2:p:224-254
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    Cited by:

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    2. Erik Nesson & Vinish Shrestha, 2021. "The effects of false identification laws on underage alcohol‐related traffic fatalities," Health Economics, John Wiley & Sons, Ltd., vol. 30(9), pages 2264-2283, September.
    3. Vinish Shrestha & Sara Markowitz, 2016. "The Pass-Through Of Beer Taxes To Prices: Evidence From State And Federal Tax Changes," Economic Inquiry, Western Economic Association International, vol. 54(4), pages 1946-1962, October.
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    5. Subramanian, Arjunan & Kumar, Parmod, 2017. "The impact of price policy on demand for alcohol in rural India," Social Science & Medicine, Elsevier, vol. 191(C), pages 176-185.
    6. Erik Nesson, 2017. "Heterogeneity in Smokers' Responses to Tobacco Control Policies," Health Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 206-225, February.
    7. Nelson Jon P. & Moran John R., 2020. "Effects of Alcohol Taxation on Prices: A Systematic Review and Meta-Analysis of Pass-Through Rates," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 20(1), pages 1-21, January.
    8. Grant, Darren, 2016. "A structural analysis of U.S. drunk driving policy," International Review of Law and Economics, Elsevier, vol. 45(C), pages 14-22.
    9. Vinish Shrestha, 2018. "Do young adults substitute cigarettes for alcohol? Learning from the master settlement agreement," Review of Economics of the Household, Springer, vol. 16(2), pages 297-321, June.

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    More about this item

    Keywords

    health economics; economics; health; alcohol; young adults.;
    All these keywords.

    JEL classification:

    • I10 - Health, Education, and Welfare - - Health - - - General
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development
    • J1 - Labor and Demographic Economics - - Demographic Economics

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