On Monday, December 2 2019, 14:00 - 15:30, Rob Pryce (University of Sheffield) will present:
The Effect of Alcohol Tax Changes on Retail Prices
Background and Aims: Alcohol duty increases are recommended by the WHO as a ‘best buy’ and as a result have been used as a government policy in helping tackle harmful alcohol consumption. However, the effectiveness of such policies relies heavily on alcohol retailers passing such increases on to the consumers (also referred to as “pass-through”). This study use retail sales data to assess the extent to which recent tax changes have been passed through in the on-trade market (outlets like bars, restaurants, coffee shops, clubs, hotels etc.) and whether this varies across the price distribution.
Setting: January 2007 to December 2017 inclusive, England. Design and Measurements: Product-level quarterly panel data for 777 alcoholic products across seven different outlet types (Hotel, Independent Pub, Managed Pub, Non- Managed Pubs, Proprietary Club, Restaurant, and Sports/Social Club). Products were analysed in seven broad beverage categories (Beer, Cider, RTDs, Spirits, Wine, Sparkling Wine, and Fortified Wine). Panel data quantile regression analysis estimating the impact of 12 excise duty changes and 3 sales tax changes on on-trade English alcohol prices.
Findings: For all seven broad beverage categories, we find evidence to suggest that there exist substantial differences in tax pass-through across the price distribution. At the lowest points of the price distribution, we find evidence of undershifting for the cheapest 25% of products across all outlet locations. Additionally, at the higher end of the distribution, excise tax increases are overshifted such that prices are higher than expected. We decompose our findings further and analyse pass-through separately for each outlet type and find considerable heterogeneity in pass-through across the various on-trade locations.
Conclusions: Pass-through rates vary considerably between outlet types and beverage categories, as well as across the price distribution. Retailers appear to undershift cheaper beverages and subsidise this loss in revenue with an overshift in the relatively more expensive products.
Room: WST-C.02.12, Weststadttürme Berliner Platz 6-8, Essen
To find more on upcoming seminars, click here.