Professional Documents
Culture Documents
OF PORTSMOUTH
Alcohol is unlike other goods and not a normal commodity; it displays the standard
characteristics of a private good. Excessive alcohol consumption is the cause of an
estimated 2.3 million premature deaths worldwide, and has a general negative effect on
society. For these reasons there are various policies implemented worldwide to try and
reduce consumption. These policies range from taxation and decreasing the availability of
alcohol to health sector intervention and raising alcohol awareness/education. The
following articles give an insight into the effectiveness of specific policies, focusing on those
involving price (taxation and minimum price). All reach agreement that increasing the price
of alcohol will decrease consumption. The articles each provide a slightly different insight
into the impacts that occur due to the pricing policies, and to try and guarantee that
unintended adverse consequences will not occur, such as creating an increase in demand in
the substitute markets of illegal alcohol and drugs.
Firstly, Parry et al. (2009) focuses on the fiscal and externality rationales for alcohol. An
analytical and stimulation framework has been implemented to assess optimal levels as well
as welfare effects of alcohol taxes and drunk driver penalties, accounting for how they
interact with the broader fiscal system. Parry et al. (2009) is the only article that has used
data from the US, in comparison to the other articles discussed which select data from the
UK. This allows an international comparison to be made, but the results should be taken
with caution as regulations and taxation varies from country to country. The model focuses
on conceptualising fiscal linkages and adopts a simplified treatment of the fiscal system, and
the researcher has acknowledged that this may cause an understating of the fiscal element
of the optimal alcohol tax. It is a static model which takes into account assumptions on
preferences, production, government and agent optimisation. Optimal tax and penalty
formulas are also considered, and parameter values include; baseline data, external costs,
elasticities and productivity effects. The results indicate the fiscal element of the optimal
alcohol tax level is quantitatively important and positive, due to the alcohol taxes in the US
being lower than their optimal levels. The revenue generated from taxes currently only
covers roughly a third of the marginal external costs; therefore from this research it can be
concluded that fiscal considerations significantly reinforce the case for increasing alcohol
taxes.
1 | P a g e
Like the previous article, Purshouse et al. (2010) assess the effects of alcohol pricing and
highlighted that it is difficult for policymakers to know the true extent of externalities or to
pricing policy options. However, the research goes one step further, and shows great
even have the motivation to set minimum prices in accordance. Thus, there are problems in
consideration to the different consumer groups (separating them by age, gender and level
knowing the correct market price and why it makes sense to put minimum pricing
mathematic model to evaluate eighteen pricing policies, creating average and peak
consumption levels. Two models were formed; price-to consumption and consumption-toharm model. Risk functions were also applied to model the effect of consumption, disease
prevention for 47 illnesses and changes on mortality. The findings give evidence that an
increase in price causes a reduction in consumption, health-care costs, and health-related
quality of life losses in all the consumer groups. The researchers found that minimum pricing
policies are effective on the harmful drinkers group whilst reducing the effects on consumer
spending for moderate drinkers. The effectiveness of a minimum price policy increases
significantly in between 0.40-0.70, causing a reduction in mean consumption per week of
1.2%-11.3% respectively in the moderate drinkers subgroup and a reduction of 4.5%-24.1%
in the harmful drinkers subgroup. Also total bans of discounting in supermarkets and offlicenses were found to be effective, but prohibiting only large discounts had little effect.
Raising the prices in pubs and bars has the greatest effect on the 18-24 year old age group.
The overall conclusion is that minimum pricing policies and discounting restrictions both
estimate a reduction in alcohol consumption, and related health harms and costs, with
There are a number of similarities and differences between the three articles discussed.
Though each article suitably treats the research question of this literature review, the
proportion of relevant content differs in each study. Firstly, all agree that an increase in
price (through either taxation or minimum price) will decrease the amount of alcohol
consumed, the researchers merely employ different framework methods and look at slightly
different aspects of the good. The data in two of the three studies is captured in between
2007-2012; this aids easy comparison, as the data will be relatively consistent over this time
frame. However, Parry et al. (2009) uses data obtained from 2000, meaning the results
gained may not coincide completely with those from the other papers. Nevertheless, the
fact that the articles have all been published so recently further reassures the reader that
the conclusions reached within the studies involve the most recent developments on the
topic of the effect of policies on reducing alcohol consumption. This is supported by recent
news that incidents of violent behaviour in the UK have reduced; with some analysts linking
this to the rise in the price of alcohol leading to reduced consumption.
All three papers use slightly different methods to conduct their research. Craven et al.
(2013) and Purshouse et al. (2010) both have an emphasis on price elasticities in their
models. This is useful as both come to similar conclusions which verify the reliability of their
work in light of the research question. Parry et al. (2009) uses a representative agent
framework; this is commonly used in efficiency analysis and allows for many assumptions
and variables. The variations in methodology helps create different perspectives, the most
important thing however, is that it reveals different ways of establishing the impact which is
beneficial.
thus showing incentive to set a minimum price. The researchers also take into consideration
Purshouse et al. (2010) focuses on the change in mortality and disease prevalence for
alcohol related illness rather than economic impact of the increase in alcohol prices;
taxes, by raising prices and lowering consumption, helping avoid market distortions and
steering slightly away from the research question. The multiple focus in the articles means
3 | P a g e
less time is spent by the authors actually exploring the research question leaving room for
Bibliography
Craven, B., Marlow, M., and Shiers, A. (2013). The Economics of Minimum Pricing for
In conclusion, Parry et al. (2009) is the most suitable paper for answering the thesis, it
focuses primarily on the impact of increasing alcohol prices to decrease consumption levels.
http://onlinelibrary.wiley.com/doi/10.1111/ecaf.12015/pdf
A critique would be that it only sheds light on alcohol consumption as a whole; it remains
unclear whether the impact of a pricing policy would have different outcomes depending on
Parry, I., West, S., and Laxminarayan, R. (2009). Fiscal and Externality Rationales for Alcohol
the beverage. Craven et al. (2013) touches on the elasticities of different beverages, but not
Policies. The B.E. Journal of Economic Analysis & Policy: Vol 9: Iss. 1, Article 29. Retrieved
in extensive detail, this could be a proposed line of further research. Furthermore, an issue
from: http://www.bepress.com/bejeap/vol9/iss1/art29
Purshouse, R., Meier, P., Brennan, A., Taylor, K. And Rafia, R. (2010). Estimated effect of
know the correct price to charge consumers and why it is logical to put additional taxation
or regulations on a market that is already taxed. In saying this, all of the articles are
epidemiological model. The Lancet: Vol 375: Iss 9723: Pages 1,355-1,364. Retrieved
from: http://www.thelancet.com/journals/lancet/article/PIIS0140-6736(10)60058-
X/fulltext
Word Count: 1,362
4 | P a g e
5 | P a g e