Job market paper: Beyond the Shelf Price: Alcohol Sales Taxes and Alcohol Consumption

Abstract

While much of the literature on alcohol taxation focuses on volume-based excise taxes, relatively little is known about the effects of sales taxes, which are applied as a percentage of retail prices and may differ in salience and incidence. This paper studies the impact of Maryland’s 2011 3% alcohol sales tax on household-level alcohol purchases. Using household level NielsenIQ scanner data and difference-in-differences and synthetic control methods, I estimate that the tax led to a 7.7% reduction in monthly ethanol ounces purchased per adult per household, with the largest reductions in spirits. Heavy drinkers also reduced their ethanol purchases, and there is no evidence of a disproportionate burden on low-income households. Households that prefer higher-priced alcohol exhibited relatively inelastic demand, maintaining their price per ounce despite a small decline in quantity purchased. These findings contribute to the alcohol taxation literature by providing new empirical evidence on how price-based alcohol taxes influence consumer behavior, highlighting their potential as a policy tool for reducing the negative externalities associated with excessive alcohol consumption.