The Positive Effects of a Higher Alcohol Tax

(Photo: Jesús León)

Philip J. Cook and Christine Piette Durrance have published a working paper called “The Virtuous Tax:  Lifesaving and Crime-Prevention Effects of the 1991 Federal Alcohol-Tax Increase.” It makes a substantial argument for the upside of higher alcohol taxes:

On January 1, 1991, the federal excise tax on beer doubled, and the tax rates on wine and liquor increased as well. … 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.