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Does above average alcohol tax revenue illustrate how regulations impact economic growth?

Economists often talk about ‘regulations’ and their effects on economic growth. This can often be a tricky thing for people to grasp. If you are arguing against regulations, aren’t you also arguing against the good ones? And how do these regulations impact economic growth anyway?

A good illustration comes from the recent lifting of Minnesota’s 160 year old ban on Sunday liquor sales. Today, the Star Tribune reports

The amount of liquor taxes collected by the state of Minnesota grew more than average in the last year, according to data that gives a first peek at the potential impact of Sunday sales.

From July 2017 when Sunday sales began to the end of June, there was a 4 percent increase year-over-year in alcohol taxes which totaled more than $186 million, according to numbers released this month by the Minnesota Department of Revenue. For the last decade, growth has averaged an increase of about 2.9 percent each fiscal year.

So, here we have a law being changed and economic activity – in this case the sale and purchase of alcohol – increasing. Maybe this is the result of people buying in state rather than driving to Wisconsin on Sunday afternoons. Maybe it is the result of people who wouldn’t have bought liquor at all on Sundays now deciding to do so. Either way, the lifting of this law has been followed by a boost in this area of economic activity.

Not so fast… 

This isn’t a controlled experiment. There could be some third factor driving this increase in revenues. The year-over-year in alcohol tax revenue was higher in both 2012 and 2016. Also, “Because the tax is not reported or taxed based on the day of the week, there isn’t a clear way to determine how much of the growth could be directly attributed to Sunday sales.”

But this is something to watch. The change in liquor laws should lead to changes in liquor sales and purchases. If the data continues to show that, we’ll have a good illustration of how regulations impact economic activity.

John Phelan is an economist at the Center of the American Experiment. 

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