The Fiscal and Social Effects of State Alcohol Control Systems

Abstract

The objective of this research is to examine, from the perspective of the state, the costs and benefits of state-owned alcohol distribution and sales systems. In the 1970s, about one-third of U.S. states controlled alcohol distribution and sales through direct ownership of wholesale and through a full or partial ownership of retail. Since the 1980s, states have gradually divested from alcohol monopolies, beginning with wine and later, retail stores. More recently, the state of Washington fully privatized its public warehouses and stores, and other states may follow. Our longitudinal analyses cover the three decades of divestment from the late 1970s to 2010. We define the strength of the state alcohol monopoly along two dimensions: product and organization. All monopoly systems control spirits, while a subset control wine; all monopoly systems control wholesale, with a subset controlling retail. A weak monopoly would thus have wholesale spirits only, and a strong monopoly would market spirits and wine exclusively through a state wholesale and retail system. Four topics are addressed in relation to the strength of state alcohol monopoly: (1) alcohol consumption, (2) alcohol-related revenues, (3) alcohol-related vehicular fatalities, and (4) crime. Other regulatory policy designed to curb irresponsible consumption are tested and compared with alcohol monopoly, such as hours and days of retail operation, advertising restrictions, and penalties for drinking and driving.