Alcohol and Taxes


Vol. 15 No. 2-3

By Dale M. Heien

Recently, economists have entered the alcohol policy arena by pointing
out that consumption, and also abuse, may be reduced through price
increases induced by taxation. Articles have appeared on various aspects
of alcohol abuse, such as driving under the influence, youth alcohol
abuse, and labor market effects. Many of those articles have the goal of
estimating the elasticity of abuse with respect to a tax increase. The
notion that abuse can be curbed by taxation has led to a call for
increased taxes on alcohol. However, the economic justification for a tax
increase is that it meet the social cost-efficiency criterion–that is,
the marginal external cost of alcohol abuse should exceed the existing
marginal tax rate. Although the studies referred to were well executed in
terms of the particular focus and econometric technique, very little has
been done recently to examine the justification of a tax increase in
terms of social costs.

The question of the external cost of alcohol use, as contrasted with
abuse, is complex and paradoxical. It is complex because there are two
classes of consumers: abusers and moderate drinkers. Although
externalities are associated mainly with abusers, both classes pay the
tax because it is impossible to differentiate between abusers and
moderate drinkers at the point of sale. Hence, a tax on alcohol is an
externality for moderate drinkers. The main negative externalities are
driving-under-the-influence (DUI) fatalities and injuries, increased
medical insurance premiums, and the effect on social security funding of
premature death.

The paradox of alcohol taxation arises because of the effect on the
health and economic welfare of moderate drinkers. Although it is well
known that excessive drinkers often have major health problems, it is
less well known that moderate drinkers have above-average health, above
the average of both abusers and abstainers alike. This phenomenon is
referred to as the U-shaped curve.[1] Recent medical research has
provided increasing evidence that moderate alcohol consumption is
associated with a decreased occurrence of coronary artery disease (CAD)
and increased longevity.

Readers are informed in some prominent health-related publications
that moderate consumption may carry health benefits. Among those
publications are the Berkeley Wellness Letter (May 1994), the Harvard
Heart Letter (March 1994), the New England Journal of Medicine, and The
Healthy Heart Handbook for Women (the NIH). CAD claims a half million
lives annually with medical costs alone exceeding $60 billion.

Because it is impossible to levy taxes solely on abusers, tax
increases will cause welfare losses for moderate drinkers through a
reduction in consumers’ surplus.[2] If moderate drinkers have lower
medical care costs, medical insurance premiums will be lower for
abstainers, resulting in a positive externality for nondrinkers. That
insurance consequence, plus the loss in consumers’ surplus, makes the
calculation of the social cost of alcohol abuse alone inappropriate for
evaluation of increased taxation.

The purpose of this article is to identify and quantify the positive
and negative external costs of alcohol consumption, not just abuse, in
order to evaluate the efficacy of a tax increase. The article relies on
previous estimates of the effects on use and abuse of price increases,
which seem quite reliable and accurately done. Following W. Kip Viscusi’s
(1994) analysis of the social costs of smoking, the article provides a
range of estimates based on varying assumptions.

The article begins by looking at previous estimates of social costs of
alcohol abuse and their methodology. Previous estimates of social cost
have ranged from $9.3 billion to $130 billion. Next, the costs particular
to DUI deaths and injuries and the subsequent issue of the value of a
statistical life are analyzed. The following section deals with the
welfare losses to moderate consumers. The impact of moderate and abusive
drinking on medical care insurance costs are analyzed next. The last
section examines these costs under various assumptions and draws some
conclusions regarding the efficacy of taxation.

Previous Estimates of the Social Cost
of Alcohol Abuse

The best known of these attempts are the various studies funded
periodically by the National Institute of Alcohol Abuse and Alcoholism
(NIAAA). The first such study, by Ralph Berry and James Boland (1977),
set the methodological tone for those to follow. Successive studies done
by the Research Triangle Institute for 1978 and 1983 were followed by a
study for 1988. Updates of these estimates also appear periodically in
special reports by the Secretary of Health and Human Services to the U.S.
Congress entitled Alcohol and Health.

Dale Heien and David Pittman (1989) criticized the NIAAA methodology
and demonstrated that the NIAAA estimates greatly overstate the costs
through systematic bias and selective interpretation of the data. The
nexus of the criticism is that the cost estimates do not follow the
economic paradigm of external costs.[3] For example, the cost figures
include the value of lost wages due to alcohol abuse and the value of the
lives of drunken drivers. Those costs are incurred by individual choice
and are not externalities. The value of lost wages accounted for over
half of the total costs. Other problems with the NIAAA-funded studies
were faulty statistical techniques, lack of overall accounting and
methodological framework, continual use of the most liberal estimates
despite the claim that only the most conservative estimates were used,
and attributing causality to alcohol abuse where none had been shown to
exist in the scientific literature.

Two recent studies have produced estimates that are consistent with
the definition of social costs used in economics. The study by Willard
Manning et al. (1991) bases the social costs of abuse on three main
factors: DUI auto fatalities (excluding drunk drivers) and injuries,
higher medical insurance premiums, and the effect of premature death on
social insurance funds. In another study of the social costs of alcohol
abuse, Heien and Pittman (1993) estimated the external costs to be $9.5
billion for 1985. The main difference between their findings and those of
Manning et al. (1991) are the value of human life. Neither study took
into account either the welfare cost on moderate consumers of tax
increases or the effect of moderate consumption on medical insurance
rates. This study deals with both these areas as well as taking a closer
look at DUI deaths and injuries.

External Costs of DUI Fatalities and Injuries

In 1993 there were 40,115 traffic fatalities in the United States.
Traffic fatalities include pedestrians, pedalcyclists, and motorcyclists
as well as automobile occupants. The National Highway Traffic Safety
Administration defines two types of accidents involving alcohol. A fatal
crash is defined as “alcohol-related” if either a driver or a
nonoccupant had a blood alcohol concentration (BAC) of at least 0.01
grams per deciliter (g/dl). Drivers with a BAC of 0.10 g/dl or greater
are termed “intoxicated.” This level is the common norm for a DUI
conviction. Using the intoxicated criterion, there were 13,984 fatalities
in accidents involving an intoxicated driver or nonoccupant in 1993. This
figure compares with 19,174 fatalities a decade earlier.

Leaving aside for the moment whether or not the externalities of DUI
should be defined as those within the intoxicated or alcohol-related
classes, there are more important distinctions to be made within both of
these classes. Table 1 presents the various classifications of fatalities
for the intoxicated driver crashes.



Type of Fatality
Intoxicated drivers
Nonintoxicated drivers
Intoxicated nonoccupants
Nonintoxicated nonoccupants
SOURCE: U.S. Department of Transportation (1993).

The foregoing classification presents a challenge as to which
fatalities are externalities. Clearly few would argue that intoxicated
drivers are an externality. They drink and drive of their own free will
and bear the risks and consequences of doing so. Not surprisingly, the
NIAAA estimates count the intoxicated drivers as an externality. Table|1
shows a large number of intoxicated drivers relative to the
nonintoxicated ones. This result is attributable to the fact that the
vast majority of DUI crashes involve one car. Similar considerations
apply to the intoxicated nonoccupants category. Here, there are two main
explanations: intoxicated pedestrians stray into traffic and intoxicated
motorcyclists have single-vehicle crashes. The last category consists
mainly of nonintoxicated bicyclists who are struck by intoxicated auto
drivers. Hence, it is reasonable to classify the deaths of nonintoxicated
drivers and nonintoxicated nonoccupants as externalities of drunken

The real debate occurs over the classification of passengers. In most
cases, it is not known if passengers are intoxicated or not. It is not
relevant whether or not they are. The main criterion is whether or not
passengers were in the car of the intoxicated driver or in the other
vehicle. For those in the other vehicle, there is clearly an externality
in just the same manner as the death of the driver is an externality.
However, most occupants of a drunken driver’s car are aware of the
condition of the driver and exercise their own free will in choosing to
ride with him or her.[4] Often they are related to the driver being
either a spouse or children.

Published data exist for 1986 on the number of passengers who were in
the drinking driver’s car. Perrine et al. (1988: Table 6) indicate that
83.3 percent of the passengers were in the drunken driver’s car. Applying
that percentage to the foregoing 1993 figures results in 487 external
deaths. The total external deaths are those 487 individuals, the 938
nonintoxicated drivers, and the 615 nonintoxicated nonoccupants. The
total of those three groups is 2,040 individuals.[5]

The choice between alcohol-related and intoxicated is somewhat
problematic. Numerous studies have shown that the relative risk of crash
involvement rises with the BAC (Perrine et al. 1988). Those studies also
show that the relation between risk and BAC is essentially flat until the
.08 or .09 level for BAC (Hurst et al. 1994). Because .10 is the cutoff
level for the intoxicated classification, it might be reasonable to take
20 percent of the alcohol involved crashes as being due to alcohol abuse.
That assumption would result in total external deaths of 2,550.

There are human, vehicular, and environmental factors that interact
with alcohol to contribute to accidents. Among them, the greatest amount
of research has been done on the human aspect. Numerous studies have
found that many of the personality traits that lead to reckless driving
are found in alcohol abusers, especially among young drivers. On a
per-mile-driven basis, fatal involvement is greatest for young drivers
and for older drivers (Massie et al. 1995). Donovan et al. (1990)
compared DUI conviction rates between a group of drivers with four prior
traffic convictions or accidents within the last year and the general
population in that age group. The “bad driver” group had over five times
the DUI conviction rate of the general population group.

In a similar previous study, Donovan et al. (1985) studied three
groups of male drivers: DWI (those arrested for DUI); HRD (those who had
received multiple nonalcoholic traffic violations or been involved in an
accident); and, GDP (general driving population). Attitudinal questions
showed the HRD and DWI groups to be generally more deviant than the GDP
group. The HRD and DWI groups did not differ significantly from each
other on any of the measures of personality function or hostility. The
authors concluded, “The noted similarities between the DWI and HRD groups
are consistent with the contention that these two groups may represent
subtypes within a larger population of high-risk drivers” (Donovan et
al. 1985: 375).

No estimates exist of the number of alcohol-related crashes that would
not have occurred if alcohol had not been present. However, drivers
between the ages of 16 and 34 accounted for 61 percent of all drivers in
fatal-alcohol related crashes.[6] Over 90 percent were males. If one
assumes that this group has the same alcohol-relative odds as the older
group, then 56 percent of the 16 to 34 age group fatalities were
incorrectly ascribed to alcohol. Still, young males also drink
proportionately more than older individuals. Adjusting for this fact
results in an overstatement of 20 percent–that is, there are 20 percent
fewer fatalities in this age group attributable to drinking. That
adjustment results in a 12 percent reduction in external deaths caused by

A related area is that of the role of drugs either in conjunction with
alcohol or used alone. Mercer and Jeffery (1995) studied blood samples
from 227 fatally injured traffic victims and found that 43 percent had
neither alcohol nor drugs, 37 percent had alcohol and no drugs, 11
percent had both, and 9 percent had drugs only. Although no attempt will
be made to estimate the number of deaths attributed to drug abuse
ascribed to alcohol, it should be considered that increases in alcohol
taxes are likely to cause individuals to substitute drugs, which are not
taxed, for alcohol.

Another aspect of the drunken-driver problem is that there are
considerable injuries caused by DUI accidents and there is considerable
property damage to the autos involved. Both factors should be treated in
the same manner as deaths caused by DUI. Classification of external costs
are the same here as for the fatalities and follows the estimates of
Kenkle (1993), with an update to 1993 for changes in medical care

Value of Statistical Lives

Whenever the abuse of alcoholic beverages causes a loss of life and
that life is considered an alcohol externality, then the life must be
valued to arrive at the cost of the externality. There are two main
methodologies for computing the value of a statistical life. The first is
the human capital method, a method that takes the earnings profile for
the remaining years of the life and computes the present value of those
earnings. The main advantage of this method is that it is the legal norm.
Wrongful death suits use the human capital approach to compute
compensation for plaintiffs.

A conceptually more satisfactory alternative is the “risk reduction”
methodology. The difference between the wage in risky jobs versus safe
jobs is taken as the measure of the compensation required to get workers
to do risky jobs. By dividing this risk premium by the probability of
death, one arrives at the value of life for that risk.

The standard approach is to estimate econometrically a hedonic wage
equation based on individual data. Such estimates are subject to a number
of problems. First, there are all of the standard econometric problems of
nonexperimental data and mutual causality. Second, risky jobs tend to be
unattractive (e.g., noisy and dirty). Hence, there may be a high
correlation between the unattractive features of a job and the risk.
Because those features are seldom measured, their effects are captured in
the risk coefficient. If so, then the coefficients for an industry or
occupation will overstate the risk premium.

Similar considerations apply to the estimate of the probability of
death (risk) in an industry. Probabilities are based on historical
frequencies that may or may not hold in the future or that may be based
on inaccurate data. Also, there is a subjective element to probabilities
that reflect risk. Some individuals may, through training, upbringing, or
heredity, deal with certain risky situations better than other

Problems associated with the risk reduction approach are discussed in
greater detail by Viscusi (1993). Although his article outlines many
criticisms of the risk approach, it should not be misunderstood as being
a refutation. Conceptually, this methodology is correct. However, there
is great variation in the empirical estimates. The estimates given in
Viscusi (1993) for air travel risk for standardized individuals range
from a low of $0.8 million to a high of $29.4 million. Such variation
does not inspire confidence in the estimates. Viscusi (1994) uses a value
of life for nonsmoking victims of environmental tobacco smoke of $5
million for 1993. Although this value is the midpoint of studies reviewed
by Viscusi (1993), it seems to be somewhat generous. Manning et al.
(1991) use a value of $1.66 million ($1986) or $2.11 million ($1993), and
Kenkel (1993a) uses $2.0 million ($1986) or $2.54 million ($1993). This
study uses the $5 million value as an upper limit.

Medical Insurance Externalities

Excess medical care costs for abusers are assumed to be passed along
to nonabusers in the form of higher medical care premiums. Hence,
estimates of the difference in medical care costs attributable to the
cost of alcohol abuse must be made. The concept behind those estimates is
to arrive at a statistical model of a “nondrinking drinker”–that is, an
individual who is like an abuser in everyway (demographically,
sociologically, and economically) but who does not abuse alcohol.
However, econometric estimates using that approach are plagued by
problems of unobserved components. Abusers lead lifestyles that include
smoking, poor nutrition, and poor self-care in general. It is difficult
to obtain samples where those traits are not present in abusers. Hence,
alcohol becomes a proxy for them. Many abusers do not have insurance and
pay for the care themselves, in which case it is not an external cost.
Also, medical care is often paid for in a state or county hospital, or is
paid through social security disability insurance. Although state
hospitals are tax supported, the cost of running those institutions may
not be an externality to taxpayers (Lee 1991).

The notion of excess medical care premiums is based on the finding
that medical care costs for abusers are above average. Although that is
true, it ignores the lower medical care costs incurred by moderate
drinkers. Using the 1988 Health Interview Survey, Lewin-VHI (1994) has
estimated the per capita medical care costs for all drinkers to be $3,295
versus $4,430 for nondrinkers. Those estimates are consistent with
medical research findings on the relation between moderate alcohol
consumption and health.

Over the past 20 years numerous studies have appeared in medical
journals, indicating that moderate alcohol use is associated with reduced
risk of CAD and greater longevity.[7] Those studies include the Harvard
study by Rimm et al. (1991), Stampfer et al. (1991), Boffeta and
Garfinkel (1990), and Klatsky et al. (1990). Because light to moderate
drinkers have substantially lower rates of CAD and mortality than do
nondrinkers or heavy drinkers, their medical care costs will be less.

Those medical findings have been extended by several economists to
examine the effect of alcohol on earnings. Given that moderate drinkers
have better health and longevity than abstainers and abusers, it is
reasonable to hypothesize that they also earn more. Articles by French
and Zarkin (1993) and Heien (1995) confirm a U-shaped relation between
earnings and alcohol consumption–that is, moderate drinkers earn more
than abusers and nondrinkers.

In the study by Manning et al. (1991), taxes on earnings were
approximately equal to the costs of collectively financed medical care
for all discount rates. Considering that study, it seems reasonable to
assume that taxes and medical costs are equal and cancel each other.
Manning’s finding can then be used as a lower limit estimate of the net
medical care cost of alcohol abuse. The exact incidence of the effect of
moderate drinking on health is complex, and a detailed analysis is beyond
the scope of the present study. However, if drinkers as a class have
lower medical care costs, then those costs will be a positive externality
for abstainers. The Lewin-VHI figures suggest that the net savings in
medical care costs (and hence presumably premiums) result in a positive
externality for nondrinkers of $21.58 billion. That figure will be used
as an upper limit for the external costs of alcohol use.

Revised Estimates of the Social Cost
of Alcohol Abuse

This section attempts to look at the range of social costs implied by
the various foregoing estimates. The main areas of negative external
costs are the value of the external lives lost and injuries attributable
to DUI accidents and the increase in medical insurance premiums
attributable to alcohol abuse, net of the social security not collected
due to premature death of abusers. The main positive externality is the
reduction in medical insurance premiums attributable to the health
benefits of moderate alcohol consumption. As mentioned previously,
estimation of social cost will be done under high and low assumptions to
permit a range of estimates.

The estimated number of external deaths from DUI driving was 2,040
using the intoxicated driver criterion and 2,550 for the alcohol-related
category. Those figures do not include the estimated 12 percent reduction
for drivers who would have crashed even if they were not drinking. The
alcohol-related figure less 12 percent, or 2,244, will be used as the
lower estimate. The upper estimate will follow Kenkle (1993) and take
one-half of the alcohol-related passengers as external and make no
adjustment for those who would have crashed anyway. That method results
in 3,765 external deaths.[8] When the external cost of injuries resulting
from DUI crashes is calculated on a pro rata basis, using Kenkel’s
figures updated by the CPI for medical care, the result is an upper limit
of $6.18 billion and a lower limit of $3.68 billion.

As previously discussed, the value of life of $5 million used by
Viscusi (1994) could be considered somewhat high given the problems of
omitted variables in measuring the risk premium and in view of estimates
used by Kenkel (1993) and Manning et al. (1991). The CPI updated value of
Kenkel’s estimate of the value of life is $2.54 million. That figure will
be used as the lower bound and Viscusi’s estimate of $5 million as the
upper bound. Applying those upper bounds of the values of life and the
DUI fatalities gives an estimate of the fatal DUI externalities of $18.83
billion. Following the same procedure for the lower limits gives an
estimate of $5.71 billion. Next, the external cost of DUI crash injuries
is estimated to be $6.18 billion for the upper limit and $3.68 billion
for the lower, which gives total costs for upper and lower bounds of
$25.00 billion and $9.39 billion. This article follows the result found
by Manning et al. (1991) that the increase in medical insurance premiums
are exactly offset by the loss in uncollected social security benefits.
Hence, the total positive external costs of alcohol use range from $9.39
to $25.00 billion.

Table 2 presents the totals for the upper and lower positive and
negative external costs and contrasts those costs with the current level
of taxation of $17.97 billion.[9] The upper value in the DUI category
reflects a greater value of life ($5 million versus $2.54 million) and
greater external deaths (3,765 versus 2,244). The difference between the
upper and lower estimate in the medical insurance category is simply the
lower cost of medical insurance premiums for nondrinkers. Tax revenues
exceed the external costs in both the lower and upper limit cases. Hence,
the externalities of alcohol use, when properly framed, are more than
accounted for by current levels of taxation.

Because the taxation levels are too high, prices are higher than they
should be for social efficiency and there is a loss in consumers’
surplus. Hence, it is appropriate to compute the loss in consumers’
surplus attributable to those excessive taxes. The loss of consumers’
surplus is offset by the level of tax receipts in excess of that needed
to cover the externality. That loss is given in the next to the last row
of Table 2.[10] The last row gives the deadweight loss–that is, the
difference between the efficiency loss and the loss of consumers’
surplus. The deadweight loss may in fact be much larger depending on the
efficiency with which the government uses the tax receipts.



Lower Estimate
Upper Estimate
External Costs
DUI crashes
Medical insurance
Total external cost
Tax revenues
Inefficiency level (difference)
Consumers’ surplus loss
Deadweight loss

What accounts for the reversal of the results from previous studies?
Several factors are prominent. First, the number of alcohol-related
fatalities and injuries have declined by 26 percent since 1986, the date
of the previous study. On the other hand, the value of life and injury
costs have risen. Those opposing forces resulted in a DUI cost of $25
billion based on the same definition of an externality, of $25 billion,
which is close to the $20 billion figure found by Manning et al. (1991)
in their study based on 1986 data. Another major factor is the increase
in alcohol tax receipts as a result of the 1991 federal excise tax
increase on alcohol. Finally, the current study accounts for the reduced
medical care costs for nondrinkers resulting from lower costs to moderate
drinkers. The more stringent definition of DUI externalities given by the
lower bound plays a role, but only for the lower bound.

The foregoing analysis results in the conclusion that total tax
revenues exceed total external costs by at least $8 billion. As long as
second order conditions are satisfied, marginal positive external costs
are much less than marginal tax rates if their respective totals are
nearly equal, as shown. Thus, on the basis of the analysis, there is
every reason to believe that the level of taxation is far beyond the
point of social efficiency.

The Historical and Fairness Standards

A recent article by Cook and Moore (1993) presented two new rationales
for increased taxation on beverage alcohol. Those are the historical
standard and the fairness standard. The historical standard says that
alcohol taxes should be maintained at their (real) historical levels and
not be allowed to be eroded by inflation. Because alcohol taxes are
generally levied on a per gallon basis and are not ad volarem, that
standard seems to have some validity. However, there are two strong
arguments against the historical standard. First, the result will depend
on what date is chosen as the historical reference. Cook and Moore choose
1951, the last time excise taxes were raised. Had an earlier date been
chosen, the result would have been different. More important, their
approach ignores the substantial increase in other alcohol taxes over the
period. Sales and excise tax rates at the state and local levels have
increased substantially over the postwar period so that the overall real
tax rate on alcoholic beverages has not declined.

The fairness standard is derived from three criteria: (1) the
“horizontal equity” criterion (equals should be treated equally); (2)
the vertical equity criterion (unequals should be treated differently, so
people with greater ability to pay taxes should pay more than lower
income people); and (3) households that receive greater government
benefits should be taxed higher. On the horizontal equity criterion, a
tax increase will fall equally on moderate drinkers, who are not the
source of the externalities, as well as the abusers. That criterion is,
in effect, no different than taxing abstainers for the costs of alcohol

The violation of the vertical equity criterion is even more obvious.
It is generally conceded that alcohol taxes are regressive–that is, they
bear more heavily on poor people because lower-income individuals tend to
drink more, and alcohol taxes are levied on a quantity basis (e.g.,
dollars per gallon).[11] The finding that expenditures on alcohol tend to
be a constant fraction of income is based on the fact that consumers
demand better quality as their incomes rise.

Finally, the criterion concerning receipt of government benefits is
reasonably clear. Cook and Moore (1993) state that alcohol abusers
clearly receive more from government programs than do others.
Nevertheless, the really interesting fact about the fairness standard is
that it says noting about what the level of taxation should be. It
addresses only how the burden should be distributed.

The Public Health Approach

In addition to the three standards–social cost, historical, and
fairness–another standard exists for measuring the cost of alcohol
abuse, namely the public health standard (Cook 1990). This standard is
used by the NIAAA and attempts to measure the economic cost of alcohol
abuse. The problem with this approach is that it is inconsistent with
Western notions of individual freedom and responsibility. Under the
public health standard, actions that harm only the abuser or his family
are lumped together with true external costs. The resulting costs are
quite high–$130 billion for the United States in 1990. The analysis by
Heien and Pittman (1989), however, strongly questions the validity of
such calculations and notes that many of the inseparable effects on
moderate consumers are ignored–including the impact on social security
funding and the health aspects of moderate drinking.


Recent articles by some economists have called for increased taxation
of alcoholic beverages. The evidence presented here indicates that the
net external costs of alcohol do not exceed the current level of
taxation. Much like the case for the taxation of tobacco (Viscusi 1994),
the rationale for a tax increase on alcohol does not pass the social-cost
test when all costs, including those imposed on moderate drinkers, are
juxtaposed against the current levels of taxation.

Alcohol bashing has become one of the “feel good” issues of the
1990s. Alcohol consumption and alcohol abuse are declining by any
objective measure. The implied notion that alcohol consumption is sinful
is a moralistic one and not supported by objective analysis. The very
title, “sin taxes,” plays on the old moralistic sentiments that led this
country to the disastrous policy of prohibition.



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Cato Journal, Vol. 15, Nos. 2-3 (Fall/Winter 1995/96). Copyright
© Cato Institute. All rights reserved.

Dale M. Heien is a Professor of Economics in the Department of
Agricultural Economics at the University of California-Davis. The author
acknowledges the useful comments given by Richard Sexton.



[1] In the more popular press, it is sometimes referred to as “The
French Paradox” after the popular “60 Minutes” television program
segment of the same name.

[2] According to evidence based on self-reporting of the American
Psychiatric Association’s Diagnostic and Statistical Manual Mental
Disorders, 7.41 percent of the adult population abuse alcohol.

[3] All of the NIAAA-sponsored studies refer to the costs as the
“economic” costs of alcohol abuse. However, no definition of this
concept is contained in any of the studies nor is any mention made of the
concept of external costs.

[4] This assertion has some empirical verification in the study by
Isaac et al. (1994). They found that where there were adult passengers,
alcohol involvement by those passengers was high (80 percent).

[5] This figure compares with a total of 7,400 deaths in Manning et
al. (1991: 97) and 5,760 in Kenkle (1993: 142). Part of the difference
between their estimates and those above reflects the fall in DUI
fatalities from 1986 to 1993.

[6] For the statistics on fatalities by age, see U.S. Department of
Transportation (1993). For an analysis of age involvement, see Massie et
al. (1995).

[7] The main causes of CAD are smoking, high blood pressure, diabetes,
and obesity. Death usually results from heart attack caused by blood
vessel blockage.

[8] It should be noted that the 3,765 estimate is considerably lower
than Kenkel’s estimate of 5,760. His estimate is for 1986, mine is for
1993. There has been a dramatic fall in the number of DUI fatalities over
the 1986-93 period.

[9] This total is composed of $7.6 billion federal excise tax
receipts, $3.6 billion state-and-local excise tax receipts, $4.57 billion
state sales taxes, and $2.21 billion local property taxes. The total does
not include liquor license and distribution fees.

[10] An estimate of -0.7 was used for the elasticity of demand. That
estimate came from Manning et al. (1995) and also conforms with other
econometric studies.

[11] The regressivity of alcohol taxes has been reaffirmed in a recent
study by Lyon and Schwab (1995).


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