The Virtuous Tax: Lifesaving and Crime-Prevention Effects of the 1991 Federal Alcohol-Tax Increase
On January 1, 1991, the federal excise tax on beer doubled, and the tax rates on wine and liquor increased as well. These changes are larger than the typical state-level changes that have been used to study the effect of price on alcohol abuse and its consequences. In this paper, we develop a method to estimate some important effects of those large 1991 changes, exploiting the interstate differences in alcohol consumption. We demonstrate that the relative importance of drinking in traffic fatalities is closely tied to per capita alcohol consumption across states. As a result, we expect that the proportional effects of the federal tax increase on traffic fatalities would be positively correlated with per capita consumption. We demonstrate that this is indeed the case, and infer estimates of the price elasticity and lives saved in each state. We repeat this exercise for other injury-fatality rates, and for nine categories of crime. For each outcome, the estimated effect of the tax increase is negatively related to average consumption, and that relationship is highly significant for the overall injury death rate, the violent crime rate, and the property crime rate. A conservative estimate is that the federal tax reduced injury deaths by 4.7%, or almost 7,000, in 1991.
We thank Liz Ananat, Ashu Handa, Jens Ludwig, Christina Peters, and Seth Sanders for helpful suggestions on an earlier draft. Erin Hye-Won Kim and Vignesh Nathan provided superb assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
- [A tax induced increase of 6 percent in alcohol prices] resulted in a reduction of 4.7 percent in injury deaths nationwide. Because...
P.J. Cook and C.P. Durrance. "The virtuous tax: Lifesaving and crime-prevention effects of the 1991 federal alcohol-tax." Journal of Health Economics 32 (2013): 261-267. citation courtesy of