Price and Income Elasticity of Demand for Alcohol Products in Montenegro

This Report was written by Institute for Socio-Economic Analysis (ISEA) in Montenegro. The report estimates the price and income elasticities of demand for various alcohol. The study find that the total own-price elasticity is only significant for spirits, but not other alcohol beverage types, although this may be a function of the available data. Specifically, a 10% increase in the price of spirits would decrease demand by 8.84%. Income elasticity, on the other hand, is significant for all three types of alcoholic beverages. The income elasticities are estimated to be 0.389, 0.663, and 0.605 for spirits, wine, and beer, respectively, meaning that an increase in the standard of living may neutralize the effects of an excise tax increase. The researchers also simulate the impact of raising the excise tax from 12.5 to 15 euros per liter based on the excise calendar. In this scenario, the price would increase by 7% while consumption would decrease by 5.08%. Tax revenues, on the other hand, would increase by 9.36%. The report concludes with recommendations for policy makers to raise excise taxes on alcohol and strengthen other alcohol control policies to reduce alcohol-related harms. 

A corresponding Policy Brief based on this report can be found here.