Revisiting the Swedish alcohol stasis after changes in travelers' allowances in 2004: petrol prices provide a piece of the puzzle.

BACKGROUND AND AIMS

In 2004, Sweden had to allow virtually unlimited private alcohol imports from other EU countries. Purchases from abroad in addition to the sales from Systembolaget stores (Sweden's alcohol retail monopoly) are a significant source of alcohol consumption in southern Sweden. However, survey studies designed to measure the expected increase in overall alcohol consumption in southern Sweden failed to detect a meaningful change. Since this was considered 'puzzling', this study aims to (at least partially) provide an explanation for this finding by testing an economic proposition, i.e., a coincidental and sudden increase in petrol prices reduced the affordability of private alcohol imports.

METHODS

Using monthly sales at the provincial level covering Jan 1997-Dec 2005 for beer and spirits, we employed a fixed-effect panel design. Two models were examined: (i) a model investigating the relationship between distance, petrol prices and alcohol sales before the liberalization, and (ii) a model investigating this relationship after the liberalization.

RESULTS

The model before the liberalization showed, as expected, that domestic alcohol sales decrease when petrol prices decrease. However, the model after the liberalization model revealed that the effect of petrol prices on beer sales depends on the (traveling) distance from the borders and, after full liberalization, the coefficients for petrol prices become positive. For spirits, the results were inconclusive.

CONCLUSION

In the aftermath of import liberalization of the Swedish alcohol market, increased petrol prices temporarily made private alcohol imports economically unattractive for consumers living close to the border. This may partly explain why, after that event, surveys did not detect the widely expected increase in self-reported alcohol consumption.