Higher taxes save lives (sometimes)

January 08, 2012|Jay Hancock

Greg Mankiw points us to this new paper published through the National Bureau of Economic Research. The 1991 increase in the federal alcohol tax, Philip Cook and Chrisitine Durrance find, is correlated with a decrease traffice deaths, violent crime and property crime. They estimate that the tax increase reduced injury deaths by 7,000 in 1991 alone. 

Of course, this may also be a study in the dangers of equating correlation with causation. So many other things have gone on in the last 20 years -- demographic changes, anti-drunk driving campaigns, changes in drunk-driving penalties and so forth -- that giving a lot of credit to the federal tax seems like a stretch. It was like 6 cents on a bottle of beer. Many other factors contributed to a decline in drinking.

From the paper's precis:

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.

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