Price Elasticities of Alcoholic Beverages in Finland in 1995

Abstract

Aims

The purpose of this article is (i) to report on the long-term average price and expenditure elasticities of retail and licensed alcohol sales by type of beverage and distribution channel in Finland in 1995–2004 (ii) to assess the impacts of the major alcohol policy changes that were made in Finland in 2004 on consumer behaviour; and (iii) to discuss the impacts of the recent set of legislative reforms introduced by the Finnish government on alcohol consumption.

Methods & Data

The demand model applied that is based on a time series analysis is in keeping with Deaton's and Muellbauer's (1980) AIDS model. The dependent variables are the consumption of alcoholic beverages as a proportion of total private consumption. The models are estimated using Zellner's (1962) SURE estimation. The annual data cover retail alcohol sales and sales of alcoholic beverages on licensed premises in Finland in 1964–2004.

Results

Retail consumption has a price elasticity of 0.70, for consumption on licensed premises the figure is 0.58. The expenditure elasticity of retail consumption is 1.59 and that of licensed consumption 1.97. By type of beverage, wine has the highest price elasticity at 1.-41, while the figure for liquor is 0.83 and for beer 0.40. The expenditure elasticity for liquor is the highest at 1.57. As for consumption on licensed premises, liquor showed by far the highest elasticity at 2.34. The corresponding figures for wine and beer were 1.02 and 0.24, respectively. In licensed consumption, too, liquor showed by far the highest expenditure elasticity at 2.67.

Conclusions

The results of this study lend support to the view that changes in price elasticities happen very slowly. In spite of the momentous changes to Finnish alcohol control policy in 2004, the results reported are very similar to the elasticities in earlier studies. There have been no radical changes in the associations described by demand functions between alcohol prices and consumption levels. In the light of the time series available, the changes of 2004 have not perhaps been quite as significant as some commentators have suggested. The biggest changes have happened in consumption on licensed premises.

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Price Elasticities of Alcoholic Beverages in Finland in 1995–2004

Abstract

Aims

Methods & Data

Results

Conclusions

References