Int. J. Environ. Res. Public Health 2010, 7 1902 range from zero to 10; hence, low APGAR scores refer to scores below 7. Researchers have found that no level of alcohol consumption during pregnancy can be deemed entirely “safe,” as even occasional drinking could lead to infant health problems [9-11]. Thus, in 2005, the U.S. Surgeon General reissued the official recommendation (since 1981) that pregnant women not drink alcohol [12]. Various public policies have targeted alcohol consumption among pregnant women. As one example, the expansion of Medicaid eligibility in the late 1980s provided pregnant women with opportunity for more access to medical information regarding the dangers of drinking while pregnant. Subsequent research evaluating that policy yielded conflicting results. Based on data from Tennessee, Pieper et al. [13] found no improvement in infant health after the expansion. Gruber and Currier [14], on the other hand, analyzed aggregate state-level data and found the likelihood of LBW decreased in states that adopted the expansion earlier than other states. Another example of public policy in this domain is the Federal Beverage Labeling Act, which mandated warning messages for alcoholic beverage containers addressing the risk of birth defects from alcohol consumption during pregnancy. Research concluded that labeling laws have had little impact on infant health outcomes [15]. Alcohol taxation is another policy approach to discourage drinking and potentially reduce alcohol-related social and health problems, including among pregnant women and their offspring. Although changes in U.S. alcohol taxation have tended to be more the result of efforts to balance state revenues than to improve the public health [16], research demonstrating the perils of prenatal alcohol exposure for developing fetuses has led some public health and policy experts to advocate for more frequent adjustments (upward) in alcohol taxes [17-19]. The potential effect of such taxation on infant health outcomes has received little attention in the policy literatures, however. This study is the first to show that raising alcohol taxes could have a beneficial impact on infant health. What have heretofore been unintended intergenerational effects could provide additional incentive to reform alcohol taxation and policies in the U.S. 2. Methods 2.1. Estimation Models In his seminal work, Becker [20] established a theory whose utility function of altruistic parents includes children’s health. Based on this theory, Rosenzweig and Schultz [21] developed a hybrid equation, upon which this study builds to account for the relationship between maternal drinking and infant health: where infant health ( ) is a function of alcohol drinking during pregnancy ( ), consumption of healthy-good ( ), and health endowment ( ). Without losing generosity, assume that alcohol consumption during pregnant has a negative impact ( ), and healthy-good consumption has a positive impact ( ), on infant health. Also assume that . Hence, the demand function for alcohol is: (1) (2)