Do the Effects of Alcohol Excise Taxes Differ by Drinking Level and by Income Level?

Abstract

We study the effect of excise alcohol taxes on ethanol consumption and prices paid for alcohol purchases. For our analysis, we exploit an unexpected and large increase in excise taxes that substantially raised alcohol prices in the state of Illinois in 2009. We combine rich, nationally representative household-level data on alcohol purchases with a synthetic control approach that allows us to compare prices paid and purchasing behavior in Illinois with the same behaviors in a weighted set of control states. We show that heavy and moderate drinkers reduced their ethanol consumption by a similar magnitude, thus casting doubt on the notion that heavy drinkers are less responsive to higher alcohol taxes. We also find similar responses for low and high-income households but document that low-income households pay more for ethanol after tax increases, thus supporting concerns about the regressive nature of alcohol taxes.