This paper estimates a dynamic demand model for liquor in the United States using panel data from 43 states. Because of taste changes over time and between states in liquor consumption, purely time series or cross sectional studies do not elicit reliable price elasticity estimates. This study makes the case for pooling and shows how one can control for individual state effects and endogeneity of the regressors using estimators suited for a dynamic demand model. Our results indicate that the long-run price elasticity is in the -0.7 range. The findings also support strong habit persistence, a small positive income elasticity, and very weak evidence of bootlegging from adjoining states. The magnitude of the long-run price effect suggests that sin taxes can serve not only as an important income source but also as a significant deterrent effect.

This paper proposes a methodology for obtaining estimates of firm-specific technical change econometrically and contrasts those estimates with a multilateral total factor productivity index. Based on a panel data set of airlines, two measures are contrasted in a variety of ways. To the extent that output characteristics differ as in the case of airlines, the two measures differ significantly. Both measures are regressed on a variety of factors potentially influencing technical efficiency, confirming that improvements in fuel efficiency and load factor have played major roles, with hubbing and competition playing smaller roles, in explaining efficiency improvements.