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Estimating effects of alcohol tax increases on highway fatalities
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Filetype[PDF-1.19 MB]

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    Draft; Project memorandum
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  • Abstract:
    There can be no doubt that tax increases which raise the price of all alcoholic beverages

    will reduce the overall consumption of alcohol which in turn will reduce highway

    accidents and fatalities. Both theoretical reasoning about the effects of tax increases

    and empirical investigations give evidence of a causal relationship between higher

    alcoholic beverage prices and accidents. The issue then becomes one of magnitude:

    How much of a reduction in accidents canbe presently expected for any given amount

    of tax? The question can be approached in two basic ways: reasoning theoretically and

    more directly through empirical studies.

    The theoretical method attempts to reason about the path any tax increase must take

    in ultimately reducing accidents and fatalities. Three links are crucial in this path if a

    strong response is to be expected: (1)the alcohol tax at the supply level must be effective

    in raising the retail price; (2) the tax-induced higher retail price must reduce consumption; (3) the consumption that is reduced must be that which is involved in alcohol-related crashes. Some of the information about these links can be reasoned from

    economic theory and from studies not directed specifically toward highway safety. The

    empirical approach is more direct in trying to establish statistical relationships among

    historical state tax changes and reductions in highway fatalities.

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