Household Consumption of Alcoholic Beverages: Estimation of Price and Expenditure Elasticities using a Demand System Model

GUSTAVO ROSSINI; EDITH DEPETRIS GUIGUET; RODRIGO GARCÍA ARANCIBIA

Talca

Conferencia; Enometrics XX; 2013

Vineyard Data Quantification Society y Universidad de Talca (Chile)

The demand for alcohol is influenced by many different factors. Price and income arethe most important; however, alcohol consumption is also influenced by taxation, advertisingrestrictions, minimum age requirements, health concerns and household demographic andsocioeconomic factors like education, marital status, household composition and so on.There has been a few studies in few studies treating the demand for alcoholicbeverages in Argentina as a complete system and the estimation of expenditures and priceelasticities using a complete system of demand.The objective of this works is to estimate expenditure and price elasticity in differentbeverages purchased by household in Argentina. Beverages include: wines, beer, spirits, andothers. The method used to estimate elasticity?s is a system of demand using the Almost IdealDemand System proposed by Deaton and Muellbauer (1980). A two-stage estimationprocedure proposed by Shonkwiler and Yen is used . Data are draw from the NationalExpenditure Household Survey 2004-05, with a total of 21080 observations.Results show that expenditure has a significant influence in alcohol consumption andthe expenditure elasticities in wines are close to the unit, meaning that an increase of 1% inexpenditure, increase also 1% in quantity. Beer has expenditure elasticity higher than wine,1.13 and spirits show and elasticity lower than 1. Sparkling wine has a negative expenditureelasticity, having wrong sign, and one reason could be that only 0,2% of the household reporta positive compunction of this alcohol beverage in the sample used.The own-price elasticities are significant and with the expected sign. The own-priceelasticity in low-quality wine is more inelastic than in high-quality wine. Beer has own-priceelasticity less than the unity. In general, the alcoholic beverages studied respond more to totalexpenditure than prices.Demographic variables included in the model show an important impact in thedemand by household.