A study has been published by Alcoholism: Clinical and Experimental Research which has revealed that raising the prices of alcoholic drinks does not result in lesser consumption. It only contributes towards drinkers going in for cheaper and inferior liquor.
Researchers believe across-the-board price increases may not always have the intended effects on alcohol sales, and suggest 'minimum price posting' as an alternative policy measure. They say the same tax may have different impacts in different markets and with different distributions of prices.
"Our study accepts the assumption that alcohol is a 'complex good', composed of different beverage types - such as beer, wine and spirits - as well as quality brands that can be high, medium or low-end," said senior researcher Paul J. Gruenewald.
"We then go on to examine the impacts of the broad distribution of alcohol beverage prices upon sales of alcohol. Our results show that higher alcohol prices may and may not cause reductions in alcohol sales and related problems. These effects will depend upon how the distribution of prices is affected," he said.
Raul Caetano, professor of epidemiology at the University of Texas, said that the there are alcoholic beverages at different levels of price, and when you implement taxation, what happens is that the individuals who are able to purchase the alcoholic beverages that were more expensive just switch to less expensive ones.
The researchers analyzed Swedish price and sales data for the years 1984 through 1994 for price effects on alcohol consumption. They found that there may be situations where the intent of the taxation is reversed, in that alcohol consumption increases rather than decreases because the alcohol of choice has become cheaper. Basically, they buy more and end up drinking more.
"We had four major findings. One where the distribution of prices for alcohol is very broad. Two, increases in prices of expensive alcohol have little impacts on sales. Three, increases in prices of inexpensive alcohol have large impacts on sales. Therefore, four, tax increases can have different impacts on sales, depending upon how they are passed on to the consumer," said Gruenewald.
In short, consumers respond to price increases by altering their total consumption and by varying their brand choices. Caetano said that this highlights the importance of considering choice before implementing "beverage price interventions."