Thursday 5 January 2012

Alco-pops and minimum pricing

The production technology for "alco-pops" isn't that complicated. Buy a 2L bottle of Coke, dump some out, pour in a bottle of cheap whisky. Share and enjoy. So when the Australians decided to impose disproportionately high taxes on mixed drinks, it would have been surprising if the kids targeted didn't revert to the methods used by their elders in the days before ready-mixed alcoholic canned drinks. The latest: the tax had no effect on binge drinking [HT: @TheIPA].
YOUNG binge drinkers have simply switched to cheaper booze to beat the Federal Government's controversial "alcopop" tax.
New research shows 15 to 29-year-olds have dodged the 70 per cent tax on popular pre-mixed drinks by changing their drink of choice.
The University of Queensland study found no significant reduction in binge drinking-related hospital admissions since the tax was introduced in 2008.
I can't believe anybody actually could have thought this would work.
Federal taxes on pre-mixed alcoholic drinks were increased in 2008 by the Rudd government to tackle binge-drinking among teens, particularly girls, and to fund a new preventative health program.
Maybe you could build a model in which credit constraints on teens are binding, their ability to pool funds across a group of friends is limited, and they have no capacity for saving up to buy a larger bottle of alcohol. And nobody sells the small "airplane bottles" of alcohol. In that world, high taxes on ready-mixed unit-sized drinks could reduce aggregate consumption.

In the real world, or at least the one I remember of a couple decades ago, folks either took turns buying a bottle or chipped in together.

The article says health groups now are lobbying for either volumetric taxation on alcohol or minimum pricing. It would be a fun intermediate micro exam question to have students compare the welfare implications of the two systems. Here are the crib notes for minimum pricing:
I'd love to see work on whether there's substitution into more toxic intoxicants with substantive price hikes. I would be surprised if a substantial increase in the price of the cheapest available alcohol did not induce substitution into solvents or worse among some of the folks the health groups might be trying to help. Then, even if we count at zero the consumption losses incurred by moderate drinkers with a price hike, it's still ambiguous whether health effects in the target group are positive or negative.


  1. Yes this was something the Ruddbot implemented to be seen to be doing something.

    But it isn't much of a surprise when this is how the issues are presented by economics reporters:

    Not likely we'll see any admission of error though.

  2. @V: Yeah, Peter wasn't a particular fan of my presentation at the ACE conference.

    You can make a very defensible argument for volumetric excise taxes that are indifferent to the form in which it's sold. I'm less convinced of the case for minimum pricing regulation.

  3. unbelievable Eric isn't it, do you think we should try prohibition on alcohol; like that marijuana stuff, we could have a law against alcohol, then a big crack down, massive resources in and gets drugs and alcohol out of the country right now.

  4. Never underestimate the stupidity of health groups and politicians.



  5. @Hristos: Hanlon's razor, yes. The data's insufficient to distinguish between malevolence and stupidity. Either one works. In the latter, they didn't know it wouldn't work; in the former, they knew it wouldn't but knew that needed a partial step designed to fail to set the ground for a bigger step. I put 40% chance on malevolence.

  6. @Eric I'd go closer to 50/50 myself. Maybe the folk in the aussie govt have forgotten what it is like to be a teenager, but I haven't. It was all about bang for your buck. The objective when we were young was to get pissed as cheaply as possible, which led to some interesting experiments with flavour combinations I have no desire to replicate. But it got the job done, and I can no longer drink most spirits thanks to the trauma they put me through in my youth :) So it seems obvious to me that raising the price of alcopops would just force kids to move to more affordable alternatives.