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A Study of Social Effects from an Increase in the Alcohol Excise Tax.

A Study of Social Effects from an Increase in the Alcohol Excise Tax. Presented by : Jason Stalter ECO 7550 Department of Economics 12-03-2007. Claim. Alcohol taxes have not increased since 1991 and along with inflation, alcohol prices have been driven down.

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A Study of Social Effects from an Increase in the Alcohol Excise Tax.

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  1. A Study of Social Effects from an Increase in the Alcohol Excise Tax. Presented by : Jason Stalter ECO 7550 Department of Economics 12-03-2007

  2. Claim • Alcohol taxes have not increased since 1991 and along with inflation, alcohol prices have been driven down. • A statement from the National Institute of Alcohol Abuse and Alcoholism says “lower prices on alcohol are associated with increased levels and frequency of drinking, particularly among underage persons”. • An increase in the Alcohol Excise tax is the most cost effective way to reduce traffic fatalities, improve public health, increase public revenue, and reduce crime.

  3. Purpose • Validate the above claims and examine what effects an increase in the Alcohol Excise Tax will have on society. • Examine what role alcohol actually has on the health of the people that choose to use it. • Investigate what effect an increase of a vice tax has on its consumption. • Analyze a number of possible demand variables to establish what does and does not have an effect on consumption.

  4. Data – OECD Health Data 2007 for US

  5. Methodology • Create a Time Series Regression model to analyze the effects various factor variables have on the consumption of alcohol. • Use a Time Series Event Study Analysis to see the effects of the last increase in the alcohol excise tax in 1991. • Construct a time series model which relates Alcohol Consumption with Health Status and Health Expenditures.

  6. Assumptions of a Time Series Model • Linear in Parameters • No Perfect Collinearity • Zero Conditional Mean • Homoskedasticity • No Serial Correlation • Normality

  7. Trend Analysis Y t=α0+α1t+et , t=1,2,…n where E(et)=0 and Var(et)=σ2e

  8. Analysis I Log(alccont)=β0+β1Log(mort)+β2Log(heexpt)+β3Log(purevt)+β4Log(lantrant)+β5Log(prestatt)+β6T

  9. Analysis II Log(alccont)=β0+β1Log(mort)+β2Log(heexpt)+β3Log(purevt)+β4Log(lantrant)+β5Log(prestatt)+β6T+β7Log(duext)

  10. Analysis III Log(alccont)=β0+β1Log(heexpt)+β2Log(prestatt)+β3T

  11. Alternative Analysis -Log(X)=β0+β1Log(alccon)+β2T

  12. Conclusion • Analysis I concludes that increases in public revenue and increases in fatalities are the most significant indicators of reducing alcohol consumption. • Analysis II concludes that even though the addition of a dummy variable to reflect the last increase in excise tax was significant it has a very non-trivial effect on consumption. • Analysis III concludes that an increase in health expenditure has a negative effect on consumption.

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