The Great Recession and Consumer Demand for Alcohol: A Dynamic Panel-Data Analysis of US Households

Chad Cotti (), Richard Dunn and Chad Cotti
Additional contact information
Chad Cotti: Department of Economics, College of Business, University of Wisconsin Oshkosh
Chad Cotti: Department of Economics, Bates College
Authors registered in the RePEc Author Service: Chad D. Cotti and Nathan Tefft

American Journal of Health Economics, 2015, vol. 1, issue 3, 297-325

Abstract: For those looking to design policies that mitigate the deleterious consequences of alcohol abuse, understanding how consumer demand for alcohol responds to changes in the local economic conditions is of great importance. We use high-frequency purchase data from a large panel of US households between 2004 and 2011 to examine how alcohol demand changes over the business cycle in a dynamic panel-data estimation framework. We find strong evidence that demand for packaged alcohol is procyclical. Changes in the state-level unemployment rate and personal per capita income between the most recent business cycle peak and trough imply a 6.5 percent decrease in the demand for packaged alcohol (ethanol by volume). The results also show that the decline in alcohol expenditures is primarily due to a decrease in quantity rather than an overall decrease in the price per ounce of ethanol purchased. Moreover, we improve on the related literature methodologically by accounting for consumption dynamics, as long-run demand for alcohol may differ from short-run demand because of habit formation in the quantity and type of alcohol consumed. Our results also indicate that failing to account for consumption dynamics will tend to understate the long-run association between macroeconomic conditions and alcohol demand.

Keywords: alcohol abuse; consumer demand; consumption dynamics (search for similar items in EconPapers)
JEL-codes: D10 I10 I12 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
http://www.mitpressjournals.org/doi/pdf/10.1162/AJHE_a_00019 link to full text PDF (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tpr:amjhec:v:1:y:2015:i:3:p:297-325

Access Statistics for this article

American Journal of Health Economics is currently edited by Thomas Buchmueller

More articles in American Journal of Health Economics from MIT Press
Bibliographic data for series maintained by The MIT Press ().