Empirical Economics

, 37:599 | Cite as

Economic determinants of the consumption of alcoholic beverages in Canada: a panel data analysis

Original Paper

Abstract

In this article, the economic determinants of the demand for three alcoholic beverages (wine, spirits, and beer) are investigated with a focus on the price, income and unemployment effects. The investigation is conducted within the fixed effects panel regression framework using a balanced panel for ten Canadian provinces spanning the years 1981–2004. The estimated own price elasticities indicate that increased government taxation is an effective tool for curtailing the consumption of spirits (at the expense of lower government tax revenue), but it is less effective for curtailing the consumption of wine or beer. The cross-price elasticity estimates reveal that taxing beer or spirits may not be an effective tool for encouraging consumption switch from these alcoholic beverages to wine in light of wine’s greater health benefits. Income emerges as an important determinant of the consumption of both wine and spirits but not of beer, whereas unemployment emerges as an important determinant of the consumption of beer but not of wine or spirits. With respect to unemployment, we find no support for the addiction hypothesis in the case of wine and spirits and strong support for the severe budget constraint hypothesis in the case of beer.

Keywords

Alcoholic beverages Demand Panel data Elasticities 

JEL Classification

C10 D12 

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Copyright information

© Springer-Verlag 2009

Authors and Affiliations

  1. 1.Department of EconomicsBrock UniversitySt. CatharinesCanada
  2. 2.Faculty of BusinessBrock UniversitySt. CatharinesCanada

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