The impact of price policy on demand for alcohol in rural India

- Whether raising the price of addictive good can reduce its burden is widely debated.
- Increase in alcohol price is likely to be regressive.
- Increasing incomes raise the cost of inebriation.
- Higher incomes increase the odds of quitting drinking.
- Raising minimum price of alcohol will adversely affect household welfare.

Whether raising the price of addictive goods can reduce its burden is widely debated in many countries, largely due to lack of appropriate data and robust methods. Three key concerns frequently raised in the literature are: unobserved heterogeneity; omitted variables; identification problem. Addressing these concerns, using robust instrument and employing unique individual-level panel data from Indian Punjab, this paper investigates two related propositions (i) will increase in alcohol price reduce its burden (ii) since greater incomes raise the costs of inebriation, will higher incomes affect consumption of alcohol negatively. Distinct from previous studies, the key variable of interest is the budget share of alcohol that allows studying the burden of alcohol consumption on drinker's and also on other family members. Results presented show that an increase in alcohol price is likely to be regressive, especially on the bottom quartile, with a rise in the budget share of alcohol given budget constraint. This outcome is robust to different econometric specifications. Preliminary explorations suggest that higher per capita income increases the odds of quitting drinking. Results reported have wider implications for the effective design of addiction related health policies.