How we spend our money conveys a message.
You can see below that for South Korea, spending on education is relatively high, Australians appear to allocate a large proportion of their money to recreation and in the U.S., it is healthcare. But today, we will take a closer look at that big dot next to Russian alcohol consumption:
Where are we going? To the economic incentives that affect Russian vodka consumption.
Vodka Taxes and Prices
The Russian government and the Russian male have had a long relationship with vodka. To see the beginning, we can go back to Ivan IV and a government tavern monopoly that generated big tax money. During the 18th century, we had Peter the Great proclaiming that a wife should be whipped if she took her husband home from a tavern prematurely. Fast forwarding almost 200 years, first Vladimir Lenin prohibited vodka and then Stalin reversed the policy because he needed the money for industrialization.
The following joke displays the opposition faced by Mikhail Gorbachev for his 1985 anti-drinking campaign:
“There was this long line for vodka, and one poor guy couldn’t stand it any longer: ‘I’m going to the Kremlin, to kill Gorbachev,’ he said. An hour later, he came back. The line was still there, and everyone asked him, ‘Did you kill him?’ ‘Kill him?!’ he responded. ‘The line for that’s even longer than this one!’”
The reason for an anti-drinking campaign? In 2012, the average Russian male had a life expectancy of 65 years–11 fewer than in the U.S. Including cirrhosis, alcohol poisoning, accidents and suicides, the following graph displays deaths attributable to alcohol for selected countries in 2012. At 30.5%, Russia tops the list:
Our Bottom Line: Ceilings, Floors and Fiscal Policy
Vastly oversimplifying a complex history, we could look to ceilings, floors and fiscal policy for economic incentives that influenced Russian alcohol consumption. During the 1990s, hoping to calm civil unrest from the economic chaos that had begun to unfold, the government initiated a ceiling on vodka prices that resulted in more vodka consumption among middle-aged men. Then during 2009, it established a minimum price–a floor– that it hiked twice in 2014 when it sought to diminish consumption.
Located below where quantity supplied meets quantity demanded, a ceiling stops price from rising to a market determined level. A floor, on the other hand, keeps a price higher than it would be if the market were the boss.
And always we can return to the revenue issue. Now, with oil prices plunging, again the government needs more vodka tax revenue.Read More