Disaggregated econometric estimation of consumer demand response by alcoholic beverage types

Pratima Devi Srivastava, Keith Robert McLaren, Michael Kurt Wohlgenant, Xueyan Zhao

Research output: Contribution to journalArticleResearchpeer-review

Abstract

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.
Original languageEnglish
Pages (from-to)412 - 432
Number of pages21
JournalAustralian Journal of Agricultural and Resource Economics
Volume59
Issue number3
DOIs
Publication statusPublished - 2015

Cite this

@article{960d9ed2b8d44d5ca245edbaf479ba31,
title = "Disaggregated econometric estimation of consumer demand response by alcoholic beverage types",
abstract = "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.",
author = "Srivastava, {Pratima Devi} and McLaren, {Keith Robert} and Wohlgenant, {Michael Kurt} and Xueyan Zhao",
year = "2015",
doi = "10.1111/1467-8489.12095",
language = "English",
volume = "59",
pages = "412 -- 432",
journal = "Australian Journal of Agricultural and Resource Economics",
issn = "1364-985X",
publisher = "Wiley-Blackwell",
number = "3",

}

Disaggregated econometric estimation of consumer demand response by alcoholic beverage types. / Srivastava, Pratima Devi; McLaren, Keith Robert; Wohlgenant, Michael Kurt; Zhao, Xueyan.

In: Australian Journal of Agricultural and Resource Economics, Vol. 59, No. 3, 2015, p. 412 - 432.

Research output: Contribution to journalArticleResearchpeer-review

TY - JOUR

T1 - Disaggregated econometric estimation of consumer demand response by alcoholic beverage types

AU - Srivastava, Pratima Devi

AU - McLaren, Keith Robert

AU - Wohlgenant, Michael Kurt

AU - Zhao, Xueyan

PY - 2015

Y1 - 2015

N2 - 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.

AB - 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.

U2 - 10.1111/1467-8489.12095

DO - 10.1111/1467-8489.12095

M3 - Article

VL - 59

SP - 412

EP - 432

JO - Australian Journal of Agricultural and Resource Economics

JF - Australian Journal of Agricultural and Resource Economics

SN - 1364-985X

IS - 3

ER -