Substitution of liquor sales across states

Abstract

This study estimates revenue changes in Idaho state liquor sales from a change in Washington state’s policy. On 1 June 2012, the state of Washington passed a ballot initiative to change existing liquor law. The net effect of the change resulted in increased liquor prices in Washington. This increase in price is hypothesized to raise demand for liquor in bordering counties in Idaho. We estimate that sales increased 10% in Idaho counties that border Washington. This represents $4.86 million dollars in increased sales, which translates into 42 new jobs for the state of Idaho. We find that a change in liquor laws in one state that result in higher prices to consumers has a statistically significant and measurable effect on liquor sales in a bordering state.

Keywords:

• economic impact
• substitutes
• liquor
• taxation

JEL Classification:

• H71
• H73

Acknowledgements

The authors wish to thank the Idaho State Liquor Division and the Washington State Economic and Revenue Forecast Council for their helpfulness.

Notes

¹ This represents the end of the fiscal year, so, for example, data for 2013 are for the fiscal year ending 30 June 2013.

² Since liquor revenue data represent revenues for the fiscal year ending June 30, the previous year’s data were used for population and income. For example, 2012 population and income were used for revenue data that was from 1 July 2012 to 30 June 2013.

³ The estimate is significant at the 1% level if the SEs are not clustered by county.

⁴ This estimate is significant at the 5% level if SEs are not clustered by county.