Affordability of alcohol as a key driver of alcohol demand in New Zealand: a co-integration analysis.

Abstract

To investigate whether affordability of alcohol is an important determinant of alcohol consumption along with price. This will inform effective tax policy to influence consumption. Co-integration analysis was used to analyse relationship between real price, affordability and consumption. Changes in retail availability of wine in 1990 and beer in 1999 were also included in the models. The econometric approach taken allows identification of short- and long-term responses. Separate analyses were performed for wine, beer, spirits and ready-to-drinks (spirits based pre-mixed drinks). New Zealand 1988-2011. Quarterly data on price and alcohol available for consumption for wine, beer, spirits and ready-to-drinks. Price data were analysed as: real price (own price of alcohol relative to the price of other goods) and affordability (average earnings relative to own price). There was strong evidence for co-integration between wine and beer consumption and affordability. There was weaker evidence for co-integration between consumption and real price. The affordability of alcohol is more important than real price in determining consumption of alcohol. This suggests that affordability needs to be considered by policy makers when determining tax and pricing policies to reduce alcohol-related harm.