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Presentation

Session: Posters
Room: TBA
Time: Fri 13:00-14:30

Presenter: Jouko Verho (The Social Insurance Institution of Finland. Research Department )

Abstract

Excise taxes on alcohol are perhaps the most important instrument that policy makers can use to influence alcohol consumption and its health effects. However, in recent years the scope for national policies to affect alcohol consumption has changed in many European countries. The expansion and deepening integration of the European Union have meant that national alcohol policies can have significant cross-border effects. As importing alcoholic beverages for personal use within EU became virtually unlimited in January 2004, increasing the price of alcohol in one country can lead to a substantial increase in the demand for alcohol in the neighbouring countries through substitution effects. For the same reason, the possibilities to influence alcohol consumption within national borders by tax policies have considerably narrowed.

This paper studies the cross-border health and productivity effects of a reduction in the Finnish excise tax on alcohol. We will focus on the effects in the Swedish regions that are close to the Finnish border. On March 1st 2004, Finland implemented a tax cut that lead to an average 19 percent decrease in the retail prices of alcoholic beverages. For beverages with high alcohol content, such as spirits, the reduction in price was even larger with an average cut of 36 percent. Alcohol sales data from the outlets of the Finnish state owned alcohol monopoly (ALKO) shows that the tax cut lead to a much higher increase in the outlets near the Swedish border than in the other outlets. Our aim is to study how this reduction in prices affected alcohol related mortality, hospitalizations and work absenteeism.

We construct our analysis data by linking the Swedish inpatient register to the IFAU database that covers the entire Swedish working-age population. The IFAU database contains a rich set of individual characteristics such as labour market outcomes including sick leave spells. Our analysis data covers all Swedes between 17 and 64 years of age living in the Northern provinces in 2000-2005.

We define treatment and control groups based on the vicinity of Swedish municipalities to Finnish alcohol outlets. The treatment group consist of municipalities that are situated close the Finnish border and the control group consist of the municipalities further from the border. We implement difference-in-differences estimator by comparing the changes in outcomes in the treatment and the control group before and after the tax cut.

In the preliminary analysis, we studied the total hospitalization rates, hospitalizations due to external injuries, and hospitalizations due to directly alcohol related illnesses among males and females. The difference-in-differences estimates show no significant changes. Hence, based on this preliminary analysis, these data suggest that the increased border shopping did not lead to adverse health outcomes in Sweden.

Key Terms

Alcohol policy, effect of alcohol, econometric evaluation

Authors:

Per Johansson (IFAU) , Tuomas Pekkarinen (Helsinki School of Economics) and Jouko Verho ( The Social Insurance Institution of Finland)

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