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Alcohol use is implicated
in many health-related policy concerns. During the 1980s, per-capita consumption
of absolute ethanol in the U.S. declined by 14 percent. In 1979, consumption
was 2.94 gallons per capita compared to 2.52 gallons in 1989. The objective
of this paper is to explain the decline in consumption, both for total
ethanol and by beverage. The historical growth of ethanol demand is decomposed
into several components, with emphasis on the role of relative prices,
real income, and demographic factors. Using the Rotterdam model of a demand
system, I first estimate the conditional demand for ethanol for each of
the three beverages (beer, wine, distilled spirits). Second, I estimate
the composite demand for total ethanol. Both sets of estimates are obtained
using quarterly data for the period 1974-1990. The estimates are tested
for conformity with the theoretical restrictions of homogeneity, symmetry,
and negativity, and are used to obtain the full-set of demand elasticities,
evaluated at mean values of the data for the 1980s. These elasticities
and the mean growth rates for the explanatory variables are used to decompose
the predicted growth of consumption into several components. The decomposition
analysis indicates a positive net effect for the combined impact of autonomous
trend, real income growth, and relative price changes, both for total ethanol
and for each of the three beverages. The negative growth of per-capita
ethanol consumption is attributable to an increase in the proportion of
the population aged 65 and over and a simultaneous decline in the proportion
of the population aged 18-29. This negative effect is particularly large
for ethanol obtained from distilled spirits, which had a mean growth rate
of -3.12 percent per annum during the 1980s.
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