A pseudo-panel approach is used to estimate own- and cross-price elasticities of off- and on-trade alcoholic beverages.
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Estimated own-price elasticities are all negative, with off-trade cider and beer being most elastic and off-trade spirits and on-trade ready-to-drinks least elastic.
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Estimated cross-price elasticities are smaller in magnitude with a mix of positive and negative signs.
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The results could be used for appraising the estimated impact of price-based interventions such as minimum unit pricing and taxation in the UK.
Abstract
The estimation of price elasticities of alcohol demand is valuable for the appraisal of price-based policy interventions such as minimum unit pricing and taxation. This study applies a pseudo-panel approach to the cross-sectional Living Cost and Food Survey 2001/2–2009 to estimate the own- and cross-price elasticities of off- and on-trade beer, cider, wine, spirits and ready-to-drinks in the UK. A pseudo-panel with 72 subgroups defined by birth year, gender and socioeconomic status is constructed. Estimated own-price elasticities from the base case fixed effect models are all negative and mostly statically significant (p < 0.05). Off-trade cider and beer are most elastic (−1.27 and −0.98) and off-trade spirits and on-trade ready-to-drinks are least elastic (−0.08 and −0.19). Estimated cross-price elasticities are smaller in magnitude with a mix of positive and negative signs. The results appear plausible and robust and could be used for appraising the estimated impact of price-based interventions in the UK.