The use of multi-sectoral models in evaluating the macroeconomic impacts of reduced household consumption of sin goods : the case of alcohol consumption in Scotland

Health policy goals across the world have sought to reduce the household consumption of alcohol and have attempted various methods to try to achieve this goal such as alcohol duties and price floors. Economies that have a high dependence on the alcohol production industry worry about the potential negative economic impact of a reduced level of household consumption. This thesis explores the usefulness of multi-sectoral economic modelling approaches in identifying the potential economic impacts of changes in household consumption and taxes on alcohol. The multi-sectoral economic modelling approaches that are used for such purpose in this thesis include Input-Output (IO) models and computable General Equilibrium (CGE) models. The use of these models helps in providing an ex-ante overview of the economic implications of increased alcohol taxes in an economy. In particular, a CGE model can contribute to quantifying the impact of policies aimed at reducing levels of household consumption of sin goods through the inclusion of health side implications. This thesis studies the use of IO and CGE models in assessing the economic impacts of alcohol policy. First, an IO model is used to analyse system-wide impacts of reducing Scottish household alcohol consumption and increased alcohol duties, following Connolly et al. (2019). The gross and net impacts of these policies are found by accounting for increased household and government spending in non-alcohol sectors. The results indicate that the gross impact of increased alcohol duties is negative. Despite this, accounting for increased government spending shows that the net impact is positive. A drawback is noted within the IO framework, which is that they do not endogenously determine prices and wages in the economy due to a fixed supply-side constraint. This chapter shows that the scope for using IO models in analysing the economic impacts of alcohol policy is limited due to a passive supply-side constraint. This leads us to employ a CGE model to further analyse the impacts of alcohol duties. With an active supply-side, CGE models can endogenously determine prices and wages, and thus, may be better suited to assess these economic impacts. The scenarios in this analysis follow Wada et al. (2017) in increasing the level of alcohol duties by 5p per unit. Gross and net impacts are assessed by recycling the raised taxes through higher local government spending. The gross results show that increasing alcohol duty would have a negative economic impact on the economy. Net results, however, show that through increased government spending, the short-run economic impact is less negative than the gross case, while the long-run economic impact is still negative. Further, since CGE models have an active supply side, the results produced have more detail in terms of impacts on prices, employment, and investment. These results show that a CGE model is more suitable to study the economic impacts of alcohol consumption. However, another drawback that is noted is that the positive health benefits of reducing alcohol consumption are not incorporated into these results. Finally, the premise that positive health benefits of reduced alcohol consumption lead to increased labour productivity is economically quantified. It is found that alcohol-associated labour productivity accounts for 0.423% of the total labour productivity in Scotland. Through this, we find the level of increase in labour productivity required to offset the gross and net impacts of increased alcohol duties. The results show that alcohol-associated labour productivity is not sufficient to offset the negative impact of gross results. However, the net impacts can be overcome, as an increase in labour productivity leads to higher employment in the long run, given that local governments recycled these taxes through higher spending. Thus, the use of CGE models in analysing the economic impacts of sin goods is found to have merit, in line with the recommendations of WHO (2009, 2010). The incorporation of changes in labour productivity within the analysis conducted through a CGE model is found to provide a good framework in the analysis of reduced alcohol consumption. It is also noted that these models have the potential to study not only alcohol but also other sin goods that exist in the economy such as tobacco and sugar. In all, we are able to use multi-sectoral economic modelling approaches in quantifying the economic impacts of policies curbing the consumption of a sin good. We are further able to develop a framework for analysing the sin goods by incorporating the positive health impacts of the reduced level of consumption. The case of alcohol in Scotland also shows the economic impacts of reducing alcohol consumption in an economy that has a high dependence on producing the sin good and, further, informs the debate on alcohol policy in a regional context.Health policy goals across the world have sought to reduce the household consumption of alcohol and have attempted various methods to try to achieve this goal such as alcohol duties and price floors. Economies that have a high dependence on the alcohol production industry worry about the potential negative economic impact of a reduced level of household consumption. This thesis explores the usefulness of multi-sectoral economic modelling approaches in identifying the potential economic impacts of changes in household consumption and taxes on alcohol. The multi-sectoral economic modelling approaches that are used for such purpose in this thesis include Input-Output (IO) models and computable General Equilibrium (CGE) models. The use of these models helps in providing an ex-ante overview of the economic implications of increased alcohol taxes in an economy. In particular, a CGE model can contribute to quantifying the impact of policies aimed at reducing levels of household consumption of sin goods through the inclusion of health side implications. This thesis studies the use of IO and CGE models in assessing the economic impacts of alcohol policy. First, an IO model is used to analyse system-wide impacts of reducing Scottish household alcohol consumption and increased alcohol duties, following Connolly et al. (2019). The gross and net impacts of these policies are found by accounting for increased household and government spending in non-alcohol sectors. The results indicate that the gross impact of increased alcohol duties is negative. Despite this, accounting for increased government spending shows that the net impact is positive. A drawback is noted within the IO framework, which is that they do not endogenously determine prices and wages in the economy due to a fixed supply-side constraint. This chapter shows that the scope for using IO models in analysing the economic impacts of alcohol policy is limited due to a passive supply-side constraint. This leads us to employ a CGE model to further analyse the impacts of alcohol duties. With an active supply-side, CGE models can endogenously determine prices and wages, and thus, may be better suited to assess these economic impacts. The scenarios in this analysis follow Wada et al. (2017) in increasing the level of alcohol duties by 5p per unit. Gross and net impacts are assessed by recycling the raised taxes through higher local government spending. The gross results show that increasing alcohol duty would have a negative economic impact on the economy. Net results, however, show that through increased government spending, the short-run economic impact is less negative than the gross case, while the long-run economic impact is still negative. Further, since CGE models have an active supply side, the results produced have more detail in terms of impacts on prices, employment, and investment. These results show that a CGE model is more suitable to study the economic impacts of alcohol consumption. However, another drawback that is noted is that the positive health benefits of reducing alcohol consumption are not incorporated into these results. Finally, the premise that positive health benefits of reduced alcohol consumption lead to increased labour productivity is economically quantified. It is found that alcohol-associated labour productivity accounts for 0.423% of the total labour productivity in Scotland. Through this, we find the level of increase in labour productivity required to offset the gross and net impacts of increased alcohol duties. The results show that alcohol-associated labour productivity is not sufficient to offset the negative impact of gross results. However, the net impacts can be overcome, as an increase in labour productivity leads to higher employment in the long run, given that local governments recycled these taxes through higher spending. Thus, the use of CGE models in analysing the economic impacts of sin goods is found to have merit, in line with the recommendations of WHO (2009, 2010). The incorporation of changes in labour productivity within the analysis conducted through a CGE model is found to provide a good framework in the analysis of reduced alcohol consumption. It is also noted that these models have the potential to study not only alcohol but also other sin goods that exist in the economy such as tobacco and sugar. In all, we are able to use multi-sectoral economic modelling approaches in quantifying the economic impacts of policies curbing the consumption of a sin good. We are further able to develop a framework for analysing the sin goods by incorporating the positive health impacts of the reduced level of consumption. The case of alcohol in Scotland also shows the economic impacts of reducing alcohol consumption in an economy that has a high dependence on producing the sin good and, further, informs the debate on alcohol policy in a regional context