Alcohol taxes and beverage prices

Abstract

Alcohol involvement in auto crashes, homicides, and teen drinking is an important policy concern, and the price of alcohol may have significant effects on these behaviors. Are alcohol taxes quickly and fully passed on to consumers? Given the difficulties of accurately measuring beverage prices, are beer taxes a good empirical proxy for the price of alcohol? Using pooled cross section–time series data on state and Federal alcohol taxes and beverage prices, beer taxes are found to be poor predictors of alcohol prices. Controlling for state and period effects, excise taxes appear to be over–shifted: Retail prices rise by more than the amount of the tax, and the rise occurs within 3 months.