NCPA - National Center for Policy Analysis

Pay More Tax and Cheat Death!

October 22, 2010

Hard times are good times for taxing "sin," says Trevor Butterworth, editor of STATS.org.

Authors of a recent meta-analysis of the research literature on alcohol taxes and their impact on consumption found that a 10 percent increase in alcohol prices would result in a 5 percent reduction in drinking.  And because drinking too much is associated with disruption, disease and death, they calculate that doubling the tax on alcohol will produce 35 percent fewer traffic crash deaths, 11 percent fewer deaths from sexually transmitted diseases and 6 percent fewer deaths from violence.

But of course, the authors only "suggest" that this might be the case.  In this case, the caveat is important, says Butterworth.

Let's start small.  You want, if you are interested in solving alcohol-related problems, to get at the heavy drinkers and get them to reduce their drinking.  So, let's assume that you increase the price of alcohol across the board by 10 percent.  How will heavy drinkers respond? 

  • According to the study, heavy drinkers are subject to a price elasticity of -0.28.
  • This means that for every 1 percent increase in taxes, a heavy drinker will cut back consumption by 0.28 percent.
  • Thus, if someone drinks 15 drinks a week, this means that we should "expect" that person to consume only 14.6 drinks instead of 15.

That's not much of a reduction.

  • Given that the majority of drunk driving fatalities (84 percent) involve a blood alcohol level of 0.08 or higher, which for an average-sized man is roughly equal to four drinks, it's far from clear how an increase in tax will produce such a massive reduction in traffic deaths.
  • Indeed, one finds contradictory evidence in the real world to the study's hypotheses.
  • For example, there is little difference over time in alcohol-related traffic fatalities between Maryland and Virginia yet Virginia has significantly higher taxes on beer, wine and spirits.

Source: Trevor Butterworth, "Pay More Tax and Cheat Death!" Forbes, October 15, 2010.

For text:

http://blogs.forbes.com/trevorbutterworth/2010/10/15/pay-more-tax-and-cheat-death/?boxes=opinionschannellatest

 

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