Since the collapse of the Soviet Union, Russians (in particular, men) have been drinking themselves to death in spectacular numbers. Indeed, the 40 percent increase (not a misprint) in overall mortality between 1990 and 2005 has largely been attributed to vodka. But why are Russians drinking so much more of it?
The standard story revolves around social and economic dislocation. But Daniel Treisman of UCLA has a simpler explanation – and one with an ironic twist. The price of vodka fell sharply both in real terms (by 77 percent between 1990 and 1994) and relative to beer and wine, making hi-test alcohol an irresistible intoxicant. And why did the price fall? Because Russia’s transition governments, fearing populist opposition, maintained price controls on vodka in the midst of an otherwise terrible period of inflation.
To Mike Canes:
I think that the mentioning of price controls is not entirely correct in the original post. The taxes were kept very low. Since vodka is essentially homogeneous product with a very simple technology, (Bertrand) competition ensures that the price is close to marginal cost plus tax, both very low.
Another reason for low taxes for inability to enforce high taxes. So, the government had to choose between having a cheap legal vodka or en expensive legal one with a lot of illegal with no control of its quality. The choice is not obvious…
This is at best an incomplete explanation. Sure, demand would be encouraged by relatively low prices, but if price controls were maintained on vodka, why didn’t supply diminish? On balance, economic analysis would suggest fewer deaths from vodka-related causes with price controls on the substance than more.