Alcohol/Leisure Complementarity: Empirical Estimates and Implications for Tax Policy

Sarah West and Ian Parry

RFF Working Paper Series from Resources for the Future

Abstract: This paper provides a first attempt to estimate the cross-price elasticity between alcoholic beverages and leisure, which is critical for assessing how much alcohol taxation might be warranted on fiscal grounds. We estimate an Almost Ideal Demand System defined over alcohol, leisure, and other goods, using data from the Consumer Expenditure Survey and other sources. Our results suggest that alcohol is a relative complement for leisure over a range of specifications. This implies that the optimal alcohol tax may substantially exceed the Pigouvian tax, reinforcing the efficiency case for higher taxation. These findings should be viewed as preliminary however, given a number of data and other limitations of the analysis.

Keywords: alcohol tax; demand system; alcohol; labor supply; labor tax (search for similar items in EconPapers)
JEL-codes: H21 H23 I18 (search for similar items in EconPapers)
Date: 2009-03-31
New Economics Papers: this item is included in nep-pbe
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Citations: View citations in EconPapers (9)

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Journal Article: Alcohol-Leisure Complementarity: Empirical Estimates and Implications for Tax Policy (2009)
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