Alcohol pricing and consumption responses in South Africa

Abstract: Despite substantial taxation on alcohol annually, alcohol consumption remains prevalent in South Africa. Literature suggests that the wealthy in South Africa are less responsive to tax increases than the poor (Chelwa, et al., 2018). This study adds to the literature by assessing the responsiveness of different social classes to price changes in alcohol through the use of a wealth index as opposed to traditional monetary wealth measures. The study applies the Deaton (1988) Unit Value Model to calculate the price elasticity of demand for alcohol for Wave 4 of the National Income Dynamics Study. This method allows for price elasticity of demand estimates to be calculated for cross-sectional survey data. In line with the broader literature, this study finds that poorer households reduce their consumption of alcohol by a larger degree than richer households in response to a change in the unit price of alcohol. Since pricing responses are not homogenous across wealth groups, findings suggest that restrictive taxation policies should be accompanied by complementary policy tools and community initiatives to ensure that all South Africans are incentivised to reduce excessive alcohol consumption.M.Com. (Development Economics