Background
The purpose of this assignment is to provide you with an opportunity to demonstrate your understanding of the material covered in the topic to date, as well as to work with the kinds of issues that economists actually work with.

Discussion
Students are encouraged to discuss the Assignment and the issues raised by the questions. This does not mean to give other students a prescription of what to do, or the answers to the questions. It means to stimulate thought and the approaches you could take to answering the issues. There can be a fine line between plagiarism and discussion. Be careful not to cross that line - discussion is a normal academic activity and helpful, but plagiarism is viewed very seriously by the University.

Tutors will not answer direct questions about the Assignment, but may be approached to answer questions on the concepts the Assignment draws on. There will be some availability of consultation times for tutors during the mid-semester break.

Word Limit
There is no word limit. You are asked to put extra effort into writing your assignment in a succinct manner. This is a very important business skill and one that you should seek to develop. Your assignment should answer each question fully, but at the same time be to the point, focused on answering the questions, and should not include unnecessary duplication of points or information.

Presentation
Assignments must be typed, although diagrams can be hand drawn as they can be difficult and pointlessly time-consuming drawn by computer.

You must acknowledge your sources – i.e. where you are using the words or ideas of another person. However, there is no need to research other sources for this assignment.

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Alcohol Taxes

Smoking is the largest cause of drug-related deaths and hospitalisations in Australia, with alcohol second.1 The social cost of alcohol consumption in Australia in the 2004–05 financial year was estimated at $15.3 billion, second to the cost of tobacco and almost double the cost of illicit drugs ($8.2 billion)2. Alcohol-related harm accounted for 3.2% of the total burden of disease and injury in Australia in 2003, equating to 3,430 deaths, and is the main cause of deaths on Australian roads. 3 In 1998, over 2,000 deaths of the total 7,000 deaths of persons under 65 years, were related to alcohol.4

Unlike smoking, in which any level of smoking causes health damage, many people who drink alcohol do not harm themselves or others; indeed, moderate alcohol consumption has been shown to lower the risk of coronary heart disease in men.5 To reduce the lifetime risk from alcohol-related harm, National Health and Medical Research Council (NHMRC) guidelines recommend consuming no more than two standard drinks per day for both sexes, and, to reduce the risk on a single occasion of drinking, consuming no more than four standard drinks for both sexes.6 In 2007, 60.8% of the population drank at levels considered to pose low risk of harm in the short and long term, while 10.3% and 20.4% drank at levels considered risky in the short and long term, respectively. 7

The adverse effects of alcohol, such as liver cirrhosis, drunk-driving crashes, workplace injuries, and various forms of violent behaviour, primarily result from excessive consumption, either from ‘binge’ drinking in the short term or through prolonged excessive consumption of alcohol in the long term. In 2008, Australians aged 15 years and over consumed, on average, the equivalent of 9.95 litres of pure ethanol per person.8

A number of strategies have been put in place to reduce alcohol-related harm by reducing the average consumption of beer, wine and spirits across the population. These have included a legal minimum age for purchasing alcohol, restrictions on alcohol advertising and restrictions on sales promotion, drink driving laws and advertisements on television, as well as advertising aimed at educating the effects of alcohol in pregnancy.

Increasing the price of alcohol (usually via taxation) also reduces consumption, as consumers buy less when the price rises. Consequently, excise taxes are an important public policy health initiative – as well as being an excellent source of revenue for Governments. In Australia, in common with many other nations, excise taxes vary according to beverage type: beer, wine or spirits; and according to the alcohol content of the beer. For example, a two litre wine cask costing $10.99 includes roughly $1.59 of tax. An equivalent volume of alcohol in full strength beer would attract $7.48 in excise, and in spirits, $16.45.9 For the purposes of this assignment, we will ignore this complication and assume the excise tax is levied per volume of ethanol in the alcoholic beverage sold.

Several studies had estimated the price elasticity of demand for ethanol, purchased via the purchase of different types of alcoholic beverages, at various different values, but we will use the price elasticity of demand by adults (defined in this case as all people aged 15 years and older) for the general category of ethanol to be –0.62, and the price elasticity of demand by young adults (defined in this case as all people aged 15 years to 24 years inclusive) to be –1.1.

References:

1. Australian Institute of Health and Welfare 2005a, 2004 National Drug Strategy Household Survey: Detailed findings, AIHW Cat. No PHE 66, AIHW, Canberra.

2. Collins DJ, Lapsley HM. The costs of tobacco, alcohol and illicit drug abuse to Australian society in 2004/05. Canberra: Commonwealth of Australia

3. Begg S, Vos T, Barker B, et al. The burden of disease and injury in Australia 2003. Canberra: Australian Institute of Health and Welfare, 2007. (AIHW Cat. No. PHE 82.)

4. Ridolfo, B, & Stevenson, C 2001, The Quantification of Drug-caused Mortality and Morbidity in Australia, 1998, Drug Statistics Series No. 7, AIHW Cat. No. PHE 29, AIHW, Canberra.

5. Carmago CA Jr, Stampfer MJ Glenn, RJ et al. (1997) Moderate alcohol consumption and risk for angina pectoris or myocardial infarction in U.S. male physicians. Annals of Internal Medicine 126(5):372–375, 1997. IN Chaloupka FJ, Grossman M and Saffer H The Effects of Price on Alcohol Consumption and Alcohol-related Problems http://pubs.niaaa.nih.gov/publications/arh26-1/22-34.htm accessed 28thMarch2012
6. National Health and Medical Research Council. (2009)Australian guidelines to reduce health risks from drinking alcohol. Canberra: NHMRCN
7. Australian Institute of Health and Welfare. (2007) National drug strategy household survey: detailed findings. Canberra: AIHW, 2008. (AIHW Cat. No. PHE 107 IN Byrnes JM, Cobiac LJ, Doran CM, Vos T and Shakeshaft AP(2010) Cost-effectiveness of volumetric alcohol taxation in Australia. The Medical Journal of Australia, Volume 192 (8), Australasian Medical Publishing Company
8. Australian Bureau of Statistics. Apparent consumption of alcohol, Australia, 2007–08. Canberra: ABS, 2009. (ABS Cat. No. 4307.0.55.001.) IN IN Byrnes JM, Cobiac LJ, Doran CM, Vos T and Shakeshaft AP(2010) Cost-effectiveness of volumetric alcohol taxation in Australia. The Medical Journal of Australia, Volume 192 (8), Australasian Medical Publishing Company
9. Henry Tax Review http://taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/publications/papers/Final_Report_Part_1/chapter_8.htm