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Publication Detail
TRJ 2003 Vol XV No 5: Elasticity of Demand for Beer, CY 1991-2002

The study estimates the income and price elasticities of demand for beer or the sensitivity of consumer demand to changes in income and prices, respectively, from 1991 to 1996 for the ad valorem tax (AVT) regime and 1997 to 2002 for the specific tax (SPT) regime. It discovers that the income elasticity of demand for medium-priced beer is slightly responsive to changes in income and that the demand responds negatively to income. On the other hand, the demand for high-priced brands is found to be highly elastic. Both income elasticity results can be explained by the consumer’s possible shift from medium-priced brands to high-priced brands as their income increases. With regard to price elasticity, there is no correlation between price and demand among the low-priced brands of beer and patrons still consume beer regardless of any increase in price. For medium-priced beers, the computed price elasticity suggests that any increase in the price will decrease demand by an almost the same percentage and consumers might either shift to low-priced beer brands, or to cheaper alcohol products other than beer or simply cut their consumption of alcohol. The results of this study may serve as relevant inputs to the proposed indexation and reclassification of excisable products. Despite the negative response of demand of certain categories of beer brands, the overall net effect of the proposed indexation will still lead to increments in revenue.

National Tax Research Center
Authors Keywords
National Tax Research Center; elasticity; elasticity of demand; beer; demand;
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