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Disaggregated econometric estimation of consumer demand response by alcoholic beverage types
Author(s) -
Srivastava Preety,
McLaren Keith R.,
Wohlgenant Michael,
Zhao Xueyan
Publication year - 2015
Publication title -
australian journal of agricultural and resource economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.683
H-Index - 49
eISSN - 1467-8489
pISSN - 1364-985X
DOI - 10.1111/1467-8489.12095
Subject(s) - wine , economics , almost ideal demand system , price elasticity of demand , externality , econometric model , consumption (sociology) , estimation , econometrics , microeconomics , production (economics) , food science , chemistry , social science , management , sociology
The paper presents estimates of price elasticities of demand for 12 disaggregated alcoholic beverages in A ustralia: premium beer, full strength beer, low alcohol beer and mid‐strength beer; red bottled wine, white bottled wine, sparkling wine, cask wine; dark and light ready‐to‐drink ( RTD ); and dark and light spirits. These disaggregated categories correspond closely to the commodities of interest to public policymakers with respect to taxation and health policies. The system of demand equations is estimated with N ielsen's data using a semiflexible A lmost I deal D emand S ystem model in order to impose negative semi‐definiteness on the demand parameters. Results indicate elastic own‐price elasticities for virtually all commodities. Cross‐price elasticities suggest that beverages most linked with negative externalities, namely full strength beer, dark RTD and dark spirits, may need to be taxed jointly. Any proposed tax increase to cask wine may also result in consumers shifting demand to more undesirable beverages. The elasticity estimates are used to illustrate the effect of a hypothetical change towards taxation equalisation based on alcohol content. These elasticities offer crucially needed inputs for analysing any tax change policies.