Privatizing the ABC system

Governor Perdue announced this week that she will not support any attempts to sell off the state's ABC system of liquor distribution and retail.  Republicans in the state legislature say they still want to take a look at selling off the system.  In a time when the state is facing over a $3 billion deficit, it is natural to ask how much privatizing the system would help. 

Last year the ABC system generated $275 million in taxes for state and local governments on sales of $727 million.  Having lived (and, I admit it, shopped) in three states with privatized liquor stores, one would expect that a privatized system would feature more stores, open longer hours, more choice and selection, and better customer service.  Opponents of privatization cite concerns about increased liquor consumption and likely increases in highway fatalities and alcohol-related illnesses.  They are no doubt correct, as inconvenience acts as a tax on alcohol consumption that tax would vanish under privatization.  Demand curves slope down. 

A key issue that has not been addressed in the press reports I have seen is how much money would be generated by ABC store privatization.  Keep in mind that some of the increase in alcohol sales that would take place would be at the cost of other adult beverages, some of which generate tax revenue (beer, wine) and some which do not (moonshine).  To get big bucks, the legislature would need to open up the entire state to private liquor stores including dry counties and cities.  This is not likely to happen.  So one has to ask how much extra tax revenue would be generated by privatization -- even a 50% increase ($137.5 million) would not go very far in plugging the state's deficit.  If the state is serious about generating extra revenue it could think about raising the tax rate on alcohol on top of privatizing the system.  A recent meta-analysis by an Australian economist estimated that the elasticity of demand for alcohol is -0.7, so higher taxes would definitely mean more revenue, fewer accidents and better health.