By analyzing individual-level data on the alcohol consumption of Russian males, this paper finds evidence for a longstanding persistence of habits towards certain type of habit-forming goods. Males who grew up in the USSR are accustomed to vodka – the most popular liquor during the Soviet era – whereas those who entered their twenties in the post-Soviet period after the beer industry expanded prefer beer. This finding emphasizes the importance of policy towards young people when they form their habits. The second finding of this paper is that habits and substitution effects outweigh “stepping stone” effect, in both short and long run periods. Policy simulation shows that a 50% subsidy on beer and 30% tax on vodka will decrease male mortality from 1.41% to 0.95% in 10 years, halving the gap between Russian and western-European mortality rates.
