ABSTRACT
In Chapter 8, we considered the alcoholic beverages group as one commodity and analysed the demand for alcohol as a whole at a cross-country level. We found that consumers’ income and the price of alcohol are the two major economic factors that influence alcohol consumption. In that chapter we also estimated the income and price elasticities of alcohol for each country and found that alcohol as a whole is a necessity and the demand for alcohol is price inelastic. In most economic policy applications, for example, the taxation of alcoholic beverages, the demand elasticity estimates are required at the individual beverage level such as for beer, wine and spirits. The price of an alcoholic beverage is heavily dependant on the level of tax charged on it by the government. Taxes on alcoholic beverages are imposed for different reasons. In some countries they are used for revenue collection or for economic considerations and in some others as instruments to control alcohol misuse (either to reduce the consumption of all alcoholic beverages or to shift the consumption from one type of beverage to another), while in some others alcohol taxes are used as a combination of the two. The level of taxation on alcoholic beverages differs from beverage to beverage and also from country to country. To determine the appropriate level of taxation placed on each alcoholic beverage, the demand elasticities are used as key inputs. Consequently, obtaining estimates of demand elasticities is of crucial importance for taxation purposes at the micro and macro level of the economy.
