Alcohol/Leisure Complementarity: Empirical Estimates and Implications for Tax Policy

36 Pages Posted: 2 Apr 2009

See all articles by Sarah E. West

Sarah E. West

Macalester College Dept. of Economics

Ian W. H. Parry

Resources for the Future

Date Written: April 1, 2009

Abstract

This paper provides a first attempt to estimate the cross-price elasticity between alcoholic beverages and leisure, which is critical for assessing how much alcohol taxation might be warranted on fiscal grounds. We estimate an Almost Ideal Demand System defined over alcohol, leisure, and other goods, using data from the Consumer Expenditure Survey and other sources. Our results suggest that alcohol is a relative complement for leisure over a range of specifications. This implies that the optimal alcohol tax may substantially exceed the Pigouvian tax, reinforcing the efficiency case for higher taxation. These findings should be viewed as preliminary however, given a number of data and other limitations of the analysis.

Keywords: alcohol tax, demand system, alcohol, labor supply, labor tax

JEL Classification: I18, H21, H23

Suggested Citation

West, Sarah E. and Parry, Ian W. H., Alcohol/Leisure Complementarity: Empirical Estimates and Implications for Tax Policy (April 1, 2009). RFF Discussion Paper No. 09-09, Available at SSRN: https://ssrn.com/abstract=1372207 or http://dx.doi.org/10.2139/ssrn.1372207

Sarah E. West (Contact Author)

Macalester College Dept. of Economics ( email )

1600 Grand Ave.
Saint Paul, MN 55105
United States
651-696-6482 (Phone)

HOME PAGE: http://www.macalester.edu/~wests

Ian W. H. Parry

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States
202-328-5151 (Phone)
202-939-3460 (Fax)

HOME PAGE: http://www.rff.org/~parry

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