Hmm

Thousands of lives a year could be saved by a small rise in alcohol prices, doctors\’ leaders said yesterday as they put more pressure on Gordon Brown to tackle Britain\’s binge-drinking "epidemic".

More than a quarter of all drink-related deaths could be prevented by a 10 per cent rise in taxes on beer, wine and spirits, the British Medical Association (BMA) claimed.

You know, that really would be rather surprising.

Sir Charles George, the chairman of the BMA science and education board, said a 10 per cent rise would prevent 29 per cent of alcohol-related deaths in men and 27 per cent in women.

Are we to assume there that a 10% rise in tax (say, a 6 or 7 % rise in final price) will cut consumption by some 28%? That would make alcohol demand amazingly responsive to changes in price. An extremely elastic response.

Does anyone actually know what the elasticity of demand of alcohol is? Have there been any economic studies on this? Or is the BMA talking out of its arse?

Update: Looking here:

For example, a price elasticity of alcohol demand of -0.5 means that a 1-percent increase in price would reduce alcohol consumption by 0.5 percent (or a 10-percent increase in price would reduce consumption by 5 percent). An extensive review of the economic literature on alcohol demand concluded that based on studies using aggregate data (i.e., data that report the amount of alcohol consumed by large groups of people), the price elasticities of demand for beer, wine, and distilled spirits are -0.3, -1.0, and -1.5, respectively

So a 10% rise in price would reduce consumption of beer by 3%, wine by 10% and spirits by 15%. Is that enough to reduce the medical impact by 28%?

Or here, more specifically the elasticity of demand amongst young people:

The finding that drinking by young adults can be considered an addictive behavior has important implications for the effects of price on alcohol consumption. For example, when Grossman and colleagues (1998) used models that ignored the addictive aspects of alcohol consumption to analyze their data, they estimated an average price elasticity of alcohol demand of -0.29.

That is, a 10% rise in prices will reduce consumption in the age group by 2.9%….you don\’t think the BMA has got a little confused do you? Multiplied the effect by 10? Or forgotten to tell us that it\’s a 100% rise in tax that will reduce the effects by 28%?

Or Table 2.1 here. A meta-study of the research.

A summary of the own price elasticity, qp η , information — reported in absolute value
form — is presented in Table 2.1. Estimates are reported for 18 countries, and there are 46 beer
own-price elasticity estimates, bb η , 54 wine own price elasticity estimates, ww η , and 50 spirits
own-price elasticity estimates, ss η . The bb η estimates ranged from highly inelastic (0.09) to
elastic (1.20), with a mean bb η of 0.38. For the ww η the range of estimated values was slightly
greater; (0.05) to (1.80), ww η = 0.77. While the ss η estimates showed the greatest variation,
ranging from; (0.10) to (2.00), ss η = 0.70. The ww η estimate and the ss η estimate appear quite
similar, and statistical tests — details of which are given in Appendix II — indicate the ww η and
the ss η are not statistically different. Using the same approach, it is possible to conclude the
bb η is statistically different to both the ww η and the ss η .
Frequency distributions for the bb η , the ww η , and the ss η are presented in Figures 2.1,
2.2, and 2.3 and the plots clearly show the majority of estimates to be less than one. In
particular, 93 percent of the bb η estimates, 69 percent of the ww η estimates, and 80 percent of
the ss η estimates are less than one. Based on this result, it might seem reasonable to generalise
and conclude: The demand for all alcoholic beverages is inelastic, and beer is the most
inelastic beverage category.

If the price elasticity of alcohol is less than one, ie inelastic, then the BMA results are higly improbable (ie, what I really mean to say is that they\’re speaking out of their arses). A 10% rise in taxation, a 6 or 7 % rise in total price, will lead to a less than 6 or 7% drop in consumption, meaning that, well, at least I think it means that, there\’s no way that there can be a 28% drop in the medical effects of it.

 

 

 

8 comments on “Hmm

  1. As with all these things, there is a range of elasticities across the population.

    Without knowing diddly squat about such things, my guess is that the elasticities will be highest amongst those not dependent on alchohol and lowest amongst those who are – possibly even across income groups.

    Therefore, those at greatest risk of an alcohol-related death will carrying on drinking, but with less money in their pocket to spend on other things they might be better off with (decent food, medical care, looking after their families etc).

  2. The Englishman has these figures…

    http://www.anenglishmanscastle.com/

    the price elasticities of demand for beer, wine, and distilled spirits are -0.3, -1.0, and -1.5, respectively (Leung and Phelps 1993). (3) These estimates suggest that beer consumption is relatively insensitive to price changes, whereas demand for wine and distilled spirits is very responsive to price.

  3. Surely the BMA must be right. After all, the sky-high booze prices in Sweden, Finland and Denmark have completely eradicated alcohol-related problems.

    Oh… Hang on a minute…

  4. Let’s test this on a small scale first to obtain the evidence on which to base the policy. Remove all subsidies from bars in the Houses of Parliament and increase prices. The quality of legislation might increase as a side-effect. However, making this permanent might dissuade sponging alkies from standing for Parliament.

  5. Surely there would be 2 counter pressures at play here? One to discourage drinking heavily due to price so that you can afford to live and the other throwing caution to the wind, drinking yourself into oblivion and being ignorant of the consequences in the morning?

    And which portion of the population will be most affected by the latter pressure do we think?

  6. There’s something about this in Tim Harfords book (the logic of life). p59, discusses Becker and Murphys theory of rational addiction. The idea is that for drinking and smoking the alcoholics and the heavy smokers are the ones who have to cut down most when prices rise. Since they’re the ones in most danger from liver disease etc the benefits in reduced mortality rate are high. Evidence cited is a paper by Cook and Tauchen ” the effect of liquor taxes on heavy drinking” (Bell J. of Econ 1982)

  7. When I was a student I brewed my own beer – at a cost of something like 12p a pint, when the cost in a pub was about £1.20. Put the price of beer up and I imagine more people will do the same.
    Of course once this is realised they’ll start demanding that home brew be banned.

    The BMA is a most obnoxious, arrogant, ignorant and foolish organisation. Generally doctors are as insufferably arrogant as they are ignorant of basic statistics and economics; they believe that because they have been to medical school they are qualified to decide what behaviour is best for the health of individuals. A finer example of the insidious nature of socialism must be difficult to find. A large group of presumably intelligent and otherwise decent people have their moral attitudes utterly warped by the poison of state control.

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