Alco-pops and minimum pricing

The production technology for "alco-pops" isn't that complicated. Buy a 2L bottle of Coke, dump some out, pour in a bottle of cheap whisky. Share and enjoy. So when the Australians decided to impose disproportionately high taxes on mixed drinks, it would have been surprising if the kids targeted didn't revert to the methods used by their elders in the days before ready-mixed alcoholic canned drinks. The latest: the tax had no effect on binge drinking [HT: @TheIPA].

YOUNG binge drinkers have simply switched to cheaper booze to beat the Federal Government's controversial "alcopop" tax.

New research shows 15 to 29-year-olds have dodged the 70 per cent tax on popular pre-mixed drinks by changing their drink of choice.

The University of Queensland study found no significant reduction in binge drinking-related hospital admissions since the tax was introduced in 2008.

I can't believe anybody actually could have thought this would work.

Federal taxes on pre-mixed alcoholic drinks were increased in 2008 by the Rudd government to tackle binge-drinking among teens, particularly girls, and to fund a new preventative health program.

Maybe you could build a model in which credit constraints on teens are binding, their ability to pool funds across a group of friends is limited, and they have no capacity for saving up to buy a larger bottle of alcohol. And nobody sells the small "airplane bottles" of alcohol. In that world, high taxes on ready-mixed unit-sized drinks could reduce aggregate consumption.

In the real world, or at least the one I remember of a couple decades ago, folks either took turns buying a bottle or chipped in together.

The article says health groups now are lobbying for either volumetric taxation on alcohol or minimum pricing. It would be a fun intermediate micro exam question to have students compare the welfare implications of the two systems. Here are the crib notes for minimum pricing:

• Minimum pricing in Australia
• CEBR on minimum pricing in Scotland
• Minimum pricing and economic rents

I'd love to see work on whether there's substitution into more toxic intoxicants with substantive price hikes. I would be surprised if a substantial increase in the price of the cheapest available alcohol did not induce substitution into solvents or worse among some of the folks the health groups might be trying to help. Then, even if we count at zero the consumption losses incurred by moderate drinkers with a price hike, it's still ambiguous whether health effects in the target group are positive or negative.