Effects of economic factors on alcohol consumption in 14 European countries

Abstract

Kalervo Leppänen & Risto Sullström & Ilpo Suoniemi: Effects of economic factors on alcohol consumption in 14 European countries This paper analyses time series data on alcohol consumption in 14 European countries. Flexible models of alcohol consumption using quantity index data and absolute alcohol in litres per adult have been specified to find similarities in consumer preferences. The SURE method and Wald test were used to estimate and test for common parameters across the countries and to obtain the corresponding restricted estimates. We also constructed comparable price indices for alcoholic beverages and total expenditure variables in order to capture differences between the countries in price levels and the consumers' purchasing power. The hypothesis of common preferences was clearly rejected by the data. Total expenditure affects the demand for alcohol equally across the countries and the price parameters are equal within the three groups, i.e. the monopoly countries, wine producers and other countries with the exception of the Netherlands. The common estimate of the expenditure parameter suggests that alcoholic beverages are considered to be normal goods rather than luxuries. The demand for alcoholic beverages is more easily controllable by excise taxes in the monopoly countries than elsewhere. In the wine-producing countries demand is relatively price inelastic. The value of the price elasticity indicates that taxes have not been set at their revenue-maximizing levels in the monopoly countries. Analysis of absolute alcohol consumption revealed that the country-specific level constants were the major factor in explaining the difference among the countries. Economic variables, the price of alcohol and total expenditure played a subsidiary yet important role.

Homogenisation in alcohol consumption in the European Union

“…Analyses on alcohol prices and income (expenditure for private consumption) from the early 1960s to the mid-1990s have been conducted within the frame of the ECAS project, showing that both price and income changes have an effect on the overall consumption. The income elasticities were rather similar across all study countries, whereas the price elasticities proved stronger in the North and weakest in the South of Europe (Leppänen et al 2001). Secondly, real incomes showed some tendencies towards increased harmonisation between the study countries.…”

“…When they entered the EU, Greece, Portugal and Spain had to accept cuts in their wine production, which affected prices. The data available on income and price on alcoholic beverages within the ECAS study suggests, however, that real price and real income (real expendi-ture) cannot have played any major role in explaining the reduction in total alcohol consumption in Southern Europe (see Leppänen et al 2001). This is illustrated in Figure 11 which shows the trends in real prices and real income for France and Italy, the two countries with the largest decline in consumption.…”

Alcohol in Spain: is it different?

“…These changes reflect a scenario where the relative price of alcoholic beverages is decreasing. Wine‐drinking countries seem to be less sensitive to price fluctuations than northern and central European countries [12], and in the case of Spain the relative cost of alcoholic beverages has remained stable since 1992, as can be seen in Fig. 1, but in the same period of time the purchasing power of the population has increased by 35.9% in real terms [13] (data obtained from http://www.ine.es/daco/ipc.htm.…”

Changes in living conditions and their links to alcohol consumption and drinking patterns in 16 European countries, 1950 to 2000

“…In the ECAS Study, alcohol policy systems (Karlsson & Österberg 2001) and economic factors (Leppänen et al 2001) are considered in separate sub-studies. In this article we will only analyse living conditions and cultural patterns, although we are aware of the close relationship that exists between, for instance, economic factors and changes in living conditions.…”