Working Paper: NBER ID: w17709
Authors: Philip J. Cook; Christine Piette Durrance
Abstract: On January 1, 1991, the federal excise tax on beer doubled, and the tax rates on wine and liquor increased as well. These changes are larger than the typical state-level changes that have been used to study the effect of price on alcohol abuse and its consequences. In this paper, we develop a method to estimate some important effects of those large 1991 changes, exploiting the interstate differences in alcohol consumption. We demonstrate that the relative importance of drinking in traffic fatalities is closely tied to per capita alcohol consumption across states. As a result, we expect that the proportional effects of the federal tax increase on traffic fatalities would be positively correlated with per capita consumption. We demonstrate that this is indeed the case, and infer estimates of the price elasticity and lives saved in each state. We repeat this exercise for other injury-fatality rates, and for nine categories of crime. For each outcome, the estimated effect of the tax increase is negatively related to average consumption, and that relationship is highly significant for the overall injury death rate, the violent crime rate, and the property crime rate. A conservative estimate is that the federal tax reduced injury deaths by 4.7%, or almost 7,000, in 1991.
Keywords: alcohol tax; traffic fatalities; crime rates; public health; economic policy
JEL Codes: H2; H23; I12; K42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 1991 federal alcohol tax increase (H27) | reduction in injury deaths (J28) |
| 1991 federal alcohol tax increase (H27) | reduction in violent crime (K42) |
| 1991 federal alcohol tax increase (H27) | reduction in property crime (K42) |
| per capita alcohol consumption (L66) | reduction in injury deaths (J28) |
| per capita alcohol consumption (L66) | reduction in crime rates (K14) |
| higher per capita alcohol consumption in wet states (L66) | greater reductions in injury deaths (J17) |
| higher per capita alcohol consumption in wet states (L66) | greater reductions in crime rates (K42) |
| alcohol tax increase (H29) | higher proportions of injury deaths and crime in wet states (H76) |