Sin taxes aren’t mechanical

By Bill Kaye-Blake 30/08/2013

The title of the post was going to be ‘Beer taxes cause child abuse’, but that over-states the case (and is inflammatory). Instead, let me just refer you to a paper I stumbled across and make a gentler point: taxes don’t mechanically change behaviour. They don’t pull a lever over here and have exactly the effect you think they will over there. Life is messy, people are complicated, and prices are just another variable.

The paper is here (pdf). The authors look at the impact of beer taxes on child abuse. The dependent variable is the probability of severe violence against children, and the main independent variable is the state tax on beer in the United States. Several other variables, including other alcohol policies, were included. The key results are in Table 1.

They find that the tax on beer significantly and sizeably reduces the probability of abuse by women. For men, on the other hand, the parameter is nearly zero  for 1976 data (in the full model) and is positive and large in 1985. That is, higher beer taxes lead to child abuse.

Yes, this is just one paper. Yes, the results are ambiguous when you take into account gender and years and model specification.

But, it serves as a warning. I can take these results and tell a plausible story. Some father just wants to go home and have a few beers and get a nice buzz on. The price has gone up, so he has to ration his beers a bit more. He can’t afford that fourth or fifth or sixth one, the one that gives him the click*. Or, when he does, he doesn’t want that now-expensive buzz ruined by some snotty, whining kid. A few beers at home has turned into worrying about money, and he takes it out on the children.

Sin taxes aren’t mechanical. Raising prices does reduce consumption (of alcohol or cigarettes or fat or sugar or whatever). But what drives the social interest in personal behaviour is the harm caused, not the consumption itself. The link between prices and harm is not as clear-cut, not as mechanical. In fact, as this article suggests, it may sometimes be the opposite of our expectations.

*Cat on a Hot Tin Roof

Brick: It’s like a switch, clickin’ off in my head. Turns the hot light off and the cool one on, and all of a sudden there’s peace.