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Keywords:

  • Alcohol consumption;
  • price elasticity;
  • taxation policy

Abstract

The strength of the effect of prices on alcohol consumption is of relevance in determining the potential impact that alcohol taxes have on consumption and, thereby, alcohol-related problems. This price-consumption relationship was investigated for New Zealand. Multiple regression analysis was employed using quarterly aggregate consumption and price data for 1983–1991. Price elasticities of alcohol consumption were estimated to be -1.1, -1.1, 0, -2.0 for beer, wine and spirits beverage, and absolute (total) alcohol consumption, respectively. These elasticity estimates and the degree to which prices explained consumption trends in the regression equations, suggest that price had a strong effect on alcohol consumption in New Zealand during the period investigated. Thus, the current taxing policy, in which excise tax is indexed to inflation, is deemed a useful tool for preventing an increase in alcohol consumption and alcohol-related problems.