An empirical analysis of the impact of state excise taxes on craft breweries in the United States

Abstract

This thesis evaluates the effects of state excise taxes on the number of craft breweries and total craft beer production within a state between 1991 and 2012. It expands upon previous research on the brewing and beer industry by investigating the craft brewery market separately and empirically examining the relationship between state excise taxes and the supply side of this market. The estimating equations used to study this relationship include lagged dependent variables to account for entry and production stickiness between years. To consistently estimate the models, a Generalized Method of Moments (GMM) estimation method is employed to account for endogeneity in the lagged dependent variables. The results from this thesis indicate that there is a significant negative relationship between state excise taxes and both the number of craft breweries and total craft brewery production within a state. Additionally, elasticity estimates suggest that this relationship is inelastic, indicating that breweries are not extremely responsive to changes in the state excise tax. However, these estimates reflect short run elasticities because the estimating equations include both state and year fixed effects. While this thesis does not consider the fact that the number of craft breweries and total craft brewery production are likely jointly determined, it provides preliminary insight into the relationship between state excise taxes and craft breweries in the United States.