The Effective Spirits’ Taxation Policy across Regions in Montenegro

Abstract

This study aims to test the impact of taxation policy on households’ spirits consumption on a regional level. To asses regional differences in spirits use and prevalence changes, due to price and income increase, we applied Two-part methodology on Household Budget Survey data. Using estimates of prevalence and conditional elasticity, we were capable of simulating the effects of price changes on consumption and public revenues. The results confirmed the positive impact of effective taxation policy – consumption decreases, and public revenues increase with evident regional differences. The paper contributes to the research of the consumption sensitivity to price and income changes, which was, until now, not empirically tested in Montenegro.