Skip to main content
Log in

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

Empirical Economics Aims and scope Submit manuscript

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.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

References

  • Adrian M, Ferguson BS (1987) Demand for domestic and imported alcohol in Canada. Appl Econ 19: 531–540

    Article  Google Scholar 

  • Alley AG, Ferguson DG, Stewart KG (1992) An Almost Ideal Demand System for alcoholic beverages in British Columbia. Empir Econ 17: 401–418

    Article  Google Scholar 

  • Andrikopoulos AA, Brox JA, Carvalho E (1997) The demand for domestic and imported alcoholic beverages in Ontario, Canada: a dynamic simultaneous equation approach. Appl Econ 29: 945–953

    Article  Google Scholar 

  • Baltagi BH (2001) Econometric analysis of panel data. Wiley, New York

    Google Scholar 

  • Beaujot R (2003) Effect of immigration on domestic structure. In: Beach CM, Green AG, Reitz JG(eds) Canadian immigration policy for the 21st Century. John Deutz Institute for Studying Economic Policy, Kingston, pp 49–91

    Google Scholar 

  • Blundell R (1988) Consumer behaviour: theory and empirical evidence-a survey. Econ J 98: 16–65

    Article  Google Scholar 

  • Bourgeois JC, Barnes JG (1979) Does advertising increase alcohol consumption?. Int J Advert 9: 247–257

    Google Scholar 

  • Bryant RR, Samaranayake VA, Wilhite A (1992) Alcohol use and wages of young men: whites vs nonwhites. Int Rev Appl Econ 6: 184–202

    Article  Google Scholar 

  • Carew R, Florkowski WJ, He S (2004) Demand for domestic and imported table wine in British Columbia: a source-differentiated Almost Ideal Demand Systems approach. Can J Agric Econ 52: 183–199

    Article  Google Scholar 

  • Cho D, Permyakov M, Ogwang T (2007) Structural changes in the demand for wine in Canada. Int J Wine Bus Res 19: 311–326

    Article  Google Scholar 

  • D’Arcy C, Siddique CM (1985) Unemployment and health: an analysis of “Canada Health Survey” data. Int J Health Serv 15: 609–635

    Google Scholar 

  • Freeman DG (2000) Alternative panel estimates of alcohol demand, taxation, and the business cycle. South Econ J 67: 325–344

    Article  Google Scholar 

  • Freeman DG (2001) Beer and the business cycle. Appl Econ Let 8: 51–54

    Article  Google Scholar 

  • Greene WH (1997) Econometric analysis. Upper Saddle River, Prentice Hall

    Google Scholar 

  • Hausman JA (1978) Specification tests in econometrics. Econometrica 46: 1251–1271

    Article  Google Scholar 

  • Heeb J, Gmel C, Zurbrugg C, Kuo M, Rehm J (2003) Changes in alcohol consumption following a reduction in the price of spirits: a natural experiment in Switzerland. Addiction 98: 1433–1446

    Article  Google Scholar 

  • Hsiao C (1986) Analysis of panel data. Cambridge University Press, Cambridge

    Google Scholar 

  • Johnson JA, Oksanen EH (1974) Socio-economic determinants of the consumption of alcoholic beverages. Appl Econ 6: 293–301

    Article  Google Scholar 

  • Johnson JA, Oksanen EH (1977) Estimation of demand for alcoholic beverages in Canada from pooled time series and cross sections. Rev Econ Stat 59: 113–118

    Article  Google Scholar 

  • Johnson JA, Oksanen EH, Veall MR, Fretz D (1992) Short-run and long-run elasticities for Canadian consumption of alcoholic beverages: an error-correction mechanism/cointegration approach. Rev Econ Stat 74: 64–74

    Article  Google Scholar 

  • Jones AM (1989) A systems approach to the demand for alcohol and tobacco. Bul Econ Res 41: 86–101

    Google Scholar 

  • Larivière É, Larue B, Chalfant J (2000) Modeling the demand for alcoholic beverages and advertising specifications. Agric Econ 22: 147–162

    Google Scholar 

  • Larue B, Ker A, Mackinnon L (1991) The demand for wine in Ontario and the phasing-out of discriminatory marks-up. Agribus 7: 475–488

    Article  Google Scholar 

  • Luoto R, Poikolainen K, Uutela A (1998) Unemployment, sociodemographic background and consumption of alcohol before and during the economic recession of the 1990 s in Finland. Int J Epidemiol 27: 623–629

    Article  Google Scholar 

  • Ornstein SI (1980) Control of alcohol consumption through price increases. J Stud Alcohol 41: 807–818

    Google Scholar 

  • Ostbye T, Pomerleau J, White M, Coolich M, McWhinney J (1993) Food and nutrition in Canadian prime time television commercials. Can J Public Health 86: 370–374

    Google Scholar 

  • Plummer R, Telfer D, Hashimoto A, Summers R (2005) Beer tourism in Canada along the Waterloo– Wellington Ale Trail. Tour Man 26: 447–458

    Article  Google Scholar 

  • Rehm J, Ballunas D, Brochnu S, Fischer B, Gnam W, Patra J, Popova S, Sarnocinska-Hart A, Taylor B (2006) The costs of substance abuse in Canada 2002. Canadian Centre for Substance Abuse, Ottawa. www.ccsa.ca

  • Richman A, Warren RA (1985) Alcohol consumption and morbidity in the Canada health survey: inter-beverage differences. Drug Alcohol Depend 15: 255–282

    Article  Google Scholar 

  • Rimm EB, Klatsky A, Grobbee D, Stampfer MJ (1996) Review of moderate alcohol consumption and reduced risk of coronary heart disease: is the effect due to beer, wine, or spirits?. British Med J 312: 731–736

    Google Scholar 

  • Selvanathan S, Selvanathan EA (2005) Empirical regularities in cross-country alcohol consumption. Econ Rec 81: S128–S142

    Article  Google Scholar 

  • Stockwell T, Leng J, Sturge J (2006) Alcohol pricing and public health in Canada: issues and opportunities. Centre for Addictions Research of BC, University of Victoria, British Columbia. http://www.carbc.uvic.ca/

  • Winton M, Heather N, Robertson I (1986) Effects of unemployment on drinking behaviour: a review of the evidence. Int J Addict 21: 1261–1283

    Google Scholar 

  • Yu W, Chen L (1998) The demand for alcoholic beverages in New Brunswick, Canada: a cointegration analysis. Can J Reg Sci 21: 1–14

    Google Scholar 

Download references

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Danny I. Cho.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Ogwang, T., Cho, D.I. Economic determinants of the consumption of alcoholic beverages in Canada: a panel data analysis. Empir Econ 37, 599–613 (2009). https://doi.org/10.1007/s00181-008-0248-4

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s00181-008-0248-4

Keywords

JEL Classification

Navigation