TY - JOUR AU - Ayyagari,Padmaja AU - Deb,Partha AU - Fletcher,Jason AU - Gallo,William T. AU - Sindelar,Jody L. TI - Sin Taxes: Do Heterogeneous Responses Undercut Their Value? JF - National Bureau of Economic Research Working Paper Series VL - No. 15124 PY - 2009 Y2 - July 2009 UR - http://www.nber.org/papers/w15124 L1 - http://www.nber.org/papers/w15124.pdf N1 - Author contact info: Padmaja Ayyagari Yale University Epidemiology & Public Health P.O. Box 208034, 60 College St. New Haven, CT 06520-8034 E-Mail: padmaja.ayyagari@yale.edu Partha Deb Hunter College Department of Economics 695 Park Avenue Room 1524 West New York, NY 10065 Tel: 212/772-5435 Fax: 212/772-5398 E-Mail: partha.deb@hunter.cuny.edu Jason Fletcher Yale University School of Public Health 60 College Street, #303 New Haven, CT 06510 Tel: (203) 785-5670 Fax: (203) 785-6287 E-Mail: jason.fletcher@yale.edu William T. Gallo CUNY School of Public Health Hunter College / CUNY 425 E. 25th Street, Rm. 817 W New York, NY 10010 E-Mail: william.gallo@hunter.cuny.edu Jody L. Sindelar Yale School of Public Health Yale University School of Medicine 60 College Street, P.O. Box 208034 New Haven, CT 06520-8034 Tel: 203/785-5287 Fax: 203/785-6287 E-Mail: jody.sindelar@yale.edu AB - This paper estimates the price elasticity of demand for alcohol using Health and Retirement Survey data. To account for unobserved heterogeneity in price responsiveness, we use finite mixture models. We recover two latent groups, one is significantly responsive to price but the other is unresponsive. Differences between these two groups can be explained in part by the behavioral factors of risk aversion, financial planning horizon, forward looking and locus of control. These results have policy implications. Only a subgroup responds significantly to price. Importantly, the unresponsive group drinks more heavily, suggesting that a higher price could fail to curb drinking by those most likely to cause negative externalities. In contrast, those least likely to impose costs on others are more responsive, thus suffering greater deadweight loss yet with less prevention of negative externalities. ER -