Russia raising taxes on beer

From Free Market Mogo on the Economist:

From the Economist:

The average Russian already drinks 30 litres of hard liquor a year, six times the amount in the EU, while imbibing a modest 77 litres of beer, a little less than a typical European. Pushing up beer prices is far more likely to encourage drinkers to swallow even more vodka or dodgy but cheap home-made spirits than to convince them to give up booze altogether. Then again, it will give Russia’s huge—and largely locally owned—vodka industry reason to raise a glass.

So I pose the question: Is this an intended or unintended consequence? If they seek to curb alcohol consumption, Russia could tax all alcohol, not strictly beer. If they seek to curb substitutes to vodka, which is largely Russian-owned, then they have applied the correct policy.

That’s interesting because during my research in alcohol demand, particular types of alcohol (beer, wine and liquor) are not considered substitutes.  Now, I am mostly familiar with the measured elasticities of beverage types in the U.S, but from what I have seen from the worldwide aggregate studies, (mostly Europe and U.K.) the same conclusions translate. Beer is the most inelastic of either of the three, so it makes sense that beer takes the hit in order to maximize revenue. (and maybe hopes of benefiting a Russian vodka industry) No doubt a cultural component is involved, but generally, I would put my money on not much of an increase in vodka sales other than seasonality and standard growth expectations.


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