Do Alcohol Excise Taxes Reduce Motor Vehicle Fatalities? Evidence from Two Illinois Tax Increases

TAX POLICY CENTER | URBAN INSTITUTE & BROOKINGS INSTITUTION Do Alcohol Excise Taxes Reduce Motor Vehicle Fatalities? Evidence from Two Illinois Tax Increases. Robert McClelland and John Iselin October 5, 2017 TAX POLICY CENTER | URBAN INSTITUTE & BROOKINGS INSTITUTION ii ACKNOWLEDGEMENTS We would like to thank Aravind Boddupalli for research assistance, Kim S. Rueben for comments on an earlier version of this paper, and Yifan Powers for preparing the document for publication. This publication relies on the analytical capability that was made possible in part by a grant from the Laura and John Arnold Foundation. The findings and conclusions contained in this report are those of the authors and do not necessarily reflect positions or policies of the Tax Policy Center or its funders. TAX POLICY CENTER | URBAN INSTITUTE & BROOKINGS INSTITUTION iii ABSTRACT This study examines the effect of alcohol excise taxes on alcohol-related fatal traffic crashes. In 2015, 29.3 percent of the 35,092 traffic fatalities in the United States involved someone driving under the influence of alcohol. Raising federal or state excise taxes on alcoholic beverages could reduce demand for alcohol and alcohol-related traffic fatalities, but within the large literature on the behavioral effects of alcohol prices and excise taxes there is no clear answer on the effect of tax increases on drunk driving deaths. We examine two large increases in excise taxes in Illinois that occurred in 1999 and in 2009. Using the synthetic control method, we do not find evidence that the tax increases led to a long-term reduction in alcohol-related traffic fatalities. Our results are robust across several specifications, although we do find evidence that, following the 2009 increase, Illinois counties that do not share a border with another state experienced a temporary drop in alcohol-related traffic fatalities. CONTENTS TAX POLICY CENTER | URBAN INSTITUTE & BROOKINGS INSTITUTION iv ACKNOWLEDGEMENTS .................................................................................................... II ABSTRACT.......................................................................................................................... III INTRODUCTION ................................................................................................................. 1 BACKGROUND .................................................................................................................. 3 Liquor Taxation and the States ......................................................................................................3 Literature Review ...........................................................................................................................4 Surveys ..........................................................................................................................................5 Individual studies ...........................................................................................................................6 METHODOLOGY AND DATA ............................................................................................. 9 Synthetic Control Method (SCM) ...................................................................................................9 Dataset ........................................................................................................................................ 11 Model Specification ..................................................................................................................... 13 RESULTS ........................................................................................................................... 15 Power Analysis ............................................................................................................................. 15 1999 Illinois Tax Change .............................................................................................................. 16 2009 Illinois Tax Change .............................................................................................................. 19 DISCUSSION .................................................................................................................... 21 TABLES AND FIGURES ..................................................................................................... 23 REFERENCES .................................................................................................................... 37 TAX POLICY CENTER | URBAN INSTITUTE & BROOKINGS INSTITUTION 1 INTRODUCTION Alcohol-impaired driving, legally defined as operating a vehicle with a blood alcohol content (BAC) of 0.08 grams per deciliter (0.08 percent) or higher, is illegal at both the federal and state level in the United States. Over the past four decades, the number of fatal alcohol-related motor vehicle crashes (FAR