Consumer demand for alcoholic beverages in Switzerland: a two-stage quadratic almost ideal demand system for low, moderate, and heavy drinking households

Abstract

In this study, we estimate final demand for beverages with a particular focus on alcoholic beverages and calculate elasticities using microdata from the Swiss household expenditure survey from 2000 to 2009, which containsdata from more than 34,000 households. We estimate price and income responses for three household segmentslight, moderate, and heavy drinking householdsto assess whether higher alcohol consumption could be described by different price and income elasticities in comparison to lower alcohol consumption. We obtain unconditional estimates by applying a two-stage budgeting quadratic almost ideal demand system. To generate missing price data, we used the recently proposed quality adjusted price approach. Due to a high share of zero consumption for some beveragescategories,we correct the model with a two-step estimation procedure. Estimation results show that heavy drinking households are much less price elastic with respect to wine and beer in comparison to moderate or light drinking households, while the price response for spirits is almost constant over the three segments. Before implementing a new tax for alcoholic beverages in Switzerland, the social, health, and economic effects of a rather small decrease in alcohol consumption among heavy drinking households must be weighed against possible negativeconsequences of a sharp decline in light or moderate drinking households.

Impact of Taxation Policy on Household Spirit Consumption and Public-Finance Sustainability

“…Generally, according to the available evidence, it was concluded that systemwide estimations that include Deaton's model were set to conditional framework elasticity estimation. On the other hand, studies that deal with elasticity estimation in unconditional frameworks showed that those estimates are higher (mostly twice) in absolute values compared to conditional estimates [14,38,42,43,45,46].…”

“…Analysis of all these factors is beyond the scope of this study. Moreover, most previous research in this area gave the estimates of conditional price and income elasticities [38,45,46,51,52]. Generally, according to the available evidence, it was concluded that systemwide estimations that include Deaton's model were set to conditional framework elasticity estimation.…”

“…Cross-price elasticity showed the effect of a change in the price of cigarettes on the consumption of spirits. According to the obtained results, an increase in cigarette price by 10% decreases spirit consumption by 1.7%, meaning that these are complementary goods [45][46][47].…”

“…All studies showed that demand for spirits is generally more responsive to price, compared to wine and beer in both highand LMICs. However, one should take into account that these results vary in the case of different applied methodologies, as well as in cultural differences in drinking preferences [42][43][44][45][46].…”

Light and heavy drinking in jurisdictions with different alcohol policy environments

“…P. Nelson, 2013J. P. Nelson, , 2015 and less price sensitive than light and moderate drinkers (Aepli, 2014;Manning, Blumberg, & Moulton, 1995;J. P. Nelson, 2013;Wagenaar et al, 2009).…”