Alcohol Demand and the Business Cycle: A Dynamic Panel-Data Analysis of Nielsen Homescan Households

We use high-frequency purchase data across a large sample of U.S. households between 2004 and 2009 to examine how alcohol demand changes over the business cycle in a dynamic panel-data estimation framework. In contrast to existing studies using individual-level panel data, we find that demand for packaged alcohol is procyclical. Changes in the state-level unemployment rate and personal per capita income between the most recent business cycle peak and trough imply a 6.5% decrease in the demand for packaged alcohol (ethanol by volume). The results also show that the decline in alcohol expenditures is primarily due to a decrease in quantity rather than an overall decrease in the price per ounce of ethanol purchased.