The Effects of Prices on Alcohol Use and its Consequences PMC


cost of alcohol

For (a), we used the two cost indicators (Int$ per adult and % GDP) from all studies reporting both direct and indirect costs and calculated the unweighted Pearson correlation. We repeated the correlation analyses applying study weights in order to account for possible distortions in the correlation introduced by variations in including cost components. Of 1708 studies identified, 29 were included, and the mean costs of alcohol use amounted to 817.6 Int$ per adult (95% confidence interval [CI] 601.8–1033.4), equivalent to 1.5% of the GDP vanderburgh house (95% CI 1.2–1.7%).

Alcohol Excise Taxes and Prices

cost of alcohol

In other words, this measure described the tangible costs attributable to alcohol in 2019 Int$ per adult. Second, we calculated a cost equivalent as a percentage of the GDP by dividing the estimated costs by the location-specific GDP of the same year for which costs were estimated. Many studies have shown that not only social drinking but also abusive drinking (i.e., alcohol dependence and/or binge drinking) is responsive to price, although apparently to a lesser extent.

Total Alcohol-Attributable Costs

These weights represented not only an indicator of study quality but further served group ideas for substance abuse to estimate the tangible costs under the assumption that all relevant cost indicators were included in the estimates. The calculation of weights started at the lowest level of costs (for a definition of cost levels, see above). First, the relative contribution of each cost category was determined by the share of costs determined by each category, averaged over all studies.

National Institute on Alcohol Abuse and Alcoholism (NIAAA)

Summaries of such studies were published more than a decade ago [8, 9] (for a systematic review restricted to the European Union, see Barrio et al. [12]), while several dozen additional studies have been published since [13]. Alcohol-attributable costs to society are captured by cost-of-illness studies, however estimates are often not comparable, e.g. due to the omission of relevant cost components. alcohol and brain fog In this contribution we (1) summarize the societal costs attributable to alcohol use, and (2) estimate the total costs under the assumption that all cost components are considered.

Taken together, the findings confirm an inverse relationship between alcohol prices and the demand for alcohol consumption—that is, the higher the price, the lower the demand. Moreover, policies that raise alcoholic-beverage taxes and, consequently, prices are effective in reducing alcohol use and abuse as well as related health, economic, and social consequences. The economic costs that result from alcohol use and abuse provide another strong argument for raising excise taxes on alcoholic beverages. In 2006, the Federal Government received about $9.2 billion from alcohol excise taxes, with State governments collecting another $4.9 billion. By comparison, the economic costs of excessive drinking in 2006 were estimated at $223.5 billion (Bouchery et al. 2011).

In other words, people who do not use alcohol have been subsidizing alcohol users, especially the top 20 percent of drinkers who consumed approximately 85 percent of all alcoholic beverages (Rogers and Greenfield 1999). However, only eight studies reported measures of uncertainty around selected point estimates and no single study reported measures of uncertainty for all estimates. As the measures of uncertainty constitute one of the two sources of variation required for random-effects meta-analyses, we relied only on the other source of variation, i.e. the difference in the methodology in estimating costs. To achieve this, we calculated weights for each study describing the proportion of all possible costs included, ranging from 0 to 1.

Most recent research, however, consistently has documented an inverse association between prices (i.e., beer taxes) and traffic fatalities (Elder et al. 2010; Makela and Osterberg 2009; McCarthy 2003; Ponicki et al. 2007; Wagenaar et al. 2010; Young and Bielinska-Kwapisz 2006). For example, using alcohol taxes as instrumental variables to correct measurement errors in price data, Young and Bielinska-Kwapisz (2006) found that higher prices of alcoholic beverages significantly reduced motor-vehicle fatalities. Elder and colleagues (2010), in a review of 11 studies, concluded that the relationship between alcohol prices or taxes and injuries and deaths from motor-vehicle crashes generally was significant and of a comparable magnitude to the relationship between these variables and alcohol consumption. Finally, a meta-analysis of 34 independent estimates also confirmed the statistically significant inverse association (Wagenaar et al. 2010). One commonly used concept in economic studies exploring the impacts of prices on drinking behaviors is termed the price elasticity of the demand for alcohol.

Early studies showed that increases in beer taxes significantly reduced fatal motor-vehicle crash rates, particularly among youth (Cook 1981; Saffer and Grossman 1987a, b). Subsequent studies using updated panel data and robust specifications consistently confirmed the conclusion that higher taxes and prices significantly reduce drinking and driving (Chaloupka et al. 1993; Ruhm 1996; Sloan et al. 1994). As a consequence of these policies, competition is reduced at some point in the local supply chain for alcoholic beverages, and economic theory predicts that prices would be higher in such less competitive markets. However, the empirical evidence on the impact of these policies on prices is limited and, at times, inconsistent.

  1. We gathered further information on gross domestic product (GDP) and on the prevalence of past-year drinkers from the studies or from external sources if not reported.
  2. Accounting for some methodological variations, our findings demonstrate that alcohol use continues to incur a high level of cost to many societies.
  3. An inverse relationship also has been identified between beer taxes and abortion rates among teenagers (Sen 2003).
  4. Excise-tax policies vary widely across States, with some States imposing taxes on prices (i.e., ad valorem taxes) and others levying excises on quantity or volume (i.e., specific taxes).

How Much Money Could Each City Save by Drinking Less?

An inverse relationship also has been identified between beer taxes and abortion rates among teenagers (Sen 2003). This observation has been confirmed by individual-level data from the Youth Risk Behavior Surveys, which demonstrated that increases in beer taxes promoted the use of condoms and other birth-control methods among teenagers (Grossman and Markowitz 2005). In all studies examined in this study, alcohol use incurred substantial costs and, if all harms caused by alcohol were to be included, these costs are estimated to amount, on average, to 1306 Int$ per adult or 2.6% of the GDP in the countries examined. As a consequence, the findings underscore and reiterate the message given by international organizations to reduce the use of alcohol [4].

Although the findings are mixed about the relative price sensitivity of abusive and nonabusive drinkers, most studies have reported that heavy/frequent drinkers normally are less responsive to price changes than light/infrequent drinkers. Thus, the estimated price elasticity of abusive drinkers ranges from −0.01 to −0.10 (Chaloupka and Laixuthai 1997; Chaloupka and Wechsler 1996; Cook and Moore 2000; French et al. 2006; Keng and Huffman 2007; Kenkel 1993, 1996; Laixuthai and Chaloupka 1993, Sloan et al. 1995; Stout et al. 2000). A more recent review of 10 studies on the effects of alcohol prices on various measures of alcohol abuse indicated that the average price elasticity was −0.28 (Wagenaar et al. 2009). Excise taxes create a wedge between the price that producers receive for their products and the final retail price that consumers pay. From a theoretical perspective, increases in excise taxes therefore automatically should lead to increases in the final retail prices of alcoholic beverages. The extent to which changes in excise taxes can be passed on to the final prices is an empirical question.

Despite numerous pleas to standardize the methodology (e.g. Møller and Matic [14]), we are still faced with a situation in which many different methodologies to estimate these costs have been used over the past decade [13]. We show that there is large variation in the studies with respect to which cost components are considered and that these differences should be accounted for. However, we also found methodological homogeneity, as nearly all studies followed a top-down approach, with indirect costs being calculated based on human capital assumptions. For (b), we divided the costs by the respective study weights, separated for the two cost indicators, thus correcting for omissions of relevant cost components. Did you know that the destructive and irresponsible use of alcohol and other drugs costs North Carolina more than $6.8 billion annually?

While these estimates overlap with our figures after adjustment for underreporting of omitted cost components, our unadjusted estimates are well below previous findings. First, the decline in drinking levels and attributable burden in many high-income countries [41, 42]; second, a lower study quality, i.e. exclusion of relevant cost components in more recent studies; and third, overproportional increases in the GDP relative to alcohol-attributable costs. This article first briefly reviews trends in alcoholic-beverage excise taxes as well as the limited literature addressing the connection between taxes and prices. The majority of the article then focuses on studies investigating the effects of prices (or taxes) on alcohol use and abuse and related adverse consequences (for additional reviews, see Chaloupka 2002; Chaloupka et al. 1998, 2002; Cook and Moore 2000, 2002; Wagenaar et al. 2010). Given the size and scope of the literature in this area, this article is not intended to be an encyclopedic review but aims to summarize the general findings and highlight recent studies.

For instance, only a few studies reported measures of uncertainty for selected estimates, which prohibits a complete meta-analytical summary of cost estimates. Furthermore, intangible costs were estimated in very different ways, again prohibiting meta-analytical aggregation. Lastly, indirect costs were mostly calculated following a human capital approach, which make the findings more comparable, but introduces the risk of overestimation costs as the underlying assumptions may not hold true. Costs calculated under the human capital approach heavily depend on the discount rate, yet there is no consensus on which rate is to be used [14]; thus, this will continue to be a limitation when comparing cost studies. We calculated two indicators to compare the economic costs attributable to alcohol use across different countries and years.

For example, Nelson (1990) found that the prices were slightly higher in monopoly States compared with prices in license States, whereas MacDonald (1986) concluded the opposite. Several studies focusing on the impact of exclusive territory policies for beer distribution determined that these policies did result in higher beer prices (Culbertson 1989; Culbertson and Bradford 1991; Jordan and Jaffee 1987; Sass and Saurman 1993, 1996). In addition, several studies consistently have demonstrated that current excise taxes are substantially below the “optimal” level when one considers the external costs (i.e., costs borne by nondrinkers or moderate drinkers) of alcohol use.

A few studies that used self-reported drinking-and-driving measures likewise concluded that higher prices or taxes would significantly reduce the probability of nonfatal crashes, particularly among youth (e.g., Chaloupka and Leixuthai 1997; Kenkel 1993). Our findings show that the reported costs from alcohol consumption amount to an equivalent of 1.5–2.6% of the study location’s GDP, with the majority of costs due to productivity losses. We gathered further information on gross domestic product (GDP) and on the prevalence of past-year drinkers from the studies or from external sources if not reported. Other required covariates were adult population size (15 years or older) for the respective jurisdiction, alcohol per capita consumption—an indicator for population alcohol exposure, and regional grouping of countries/locations (henceforth, locations).

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