Assessing the impacts of alcohol sales restrictions

• In Event: Beyond the First Sip:New Insights into Consumer Response to Excise Taxes

Abstract

We examine the impacts of alcohol sales restrictions and alcohol taxation on alcohol sales and also assess broader welfare implications. We focus on the role of government alcohol monopolies in an environment where sales of alcohol is allowed but limited outside of the state stores. We are able to leverage two reforms that relaxed the restriction on alcohol sales outside of the state monopoly. We also utilize changes in alcohol tax rates. Our data includes product level monthly sales from the state monopolies in Finland and Sweden as well as private grocery store chains in the two countries spanning a decade. In these data we can study in detail the impact of the reforms on total alcohol sales as well as substitution and spillover patterns across product categories and different types of stores. Our results indicate that sales of alcohol products that were newly allowed in grocery stores increased to about 500\% of the level the products had been sold in the state monopoly prior to loosening the restriction. Contrasting this large main effect, we find also very large substitution between different product categories and also between the state monopoly and private stores. The net effect of the reforms seems to be negligible on total alcohol consumption when accounting all these substitution patterns, despite the very large direct effect. We also find evidence of spillover effects to the sales of more distant alcohol product categories than the ones directly affected by the reform. These effects entail a welfare loss originating from alcohol sales restrictions. We provide a theory discussion and survey evidence to discuss the potential mechanisms behind the main effects.

Authors

• Tuomas Kosonen, VATT Institute for Economic Research

• Sami Jysmä, Labor Institute for Economic Research, and Tampere University

• Arnaldur Stefansson, University of Iceland

• Lukas Worku, lukas.worku@tuni.fi