| 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. |