Alcohol consumption is a major cause of disease and death worldwide. In France, alcohol use is the third leading risk factor for mortality and morbidity, with 7.0% of all deaths and 7.9% of all new cancer cases in 2015.
Public health agencies consider pricing policies as a key element of any national comprehensive strategy to reduce the burden of alcohol. Yet, there are different tools to regulate prices, including unit excise taxes, ad valorem taxes and minimum unit prices (MUP). The market impacts of these different policy options, implemented alone or in combination, is likely to differ, depending on consumer substitutions in quality and quantity between and within alcohol categories, and suppliers’ strategic price reactions.
In this study, we construct a structural model of alcohol markets that accounts for consumer substitutions, and producers’ and retailers’ bargaining and price-setting strategies. We calibrate the model on household scanner data. We combine these estimates with an epidemiological simulation model (Chase et al., 2021) to simulate the impact of alcohol excise tax reforms and minimum unit price policy on markets, individual alcohol intakes and cancer incidence.
Our first results show that replacing all existing alcohol-specific excise taxes by a single ethanol excise tax may have the counterproductive effect of increasing alcohol intakes, by inducing substitutions from wines (currently untaxed) to spirits. By contrast, a 0.5€/standard drink MUP would be the best compromise, in terms of public health impacts and effects on consumer welfare and producer profits. We also find that supply side reactions have significant impacts when the policy intensifies the price competition between products within a category.
Overall, this study will contribute to the existing literature on alcohol price policies by comparing excise taxes and MUP policies, by showing the role of supply-side price responses, and by emphasising that each country needs to account for its specific alcohol culture in the design of effective price regulations.