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Impact of Taxation Policy on Household Spirit Consumption and Public-Finance Sustainability

Author

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  • Tanja Laković

    (Faculty of Economics, University of Montenegro, 81000 Podgorica, Montenegro)

  • Ana Mugoša

    (Faculty of Economics, University of Montenegro, 81000 Podgorica, Montenegro)

  • Mirjana Čizmović

    (Faculty of Economics and Business, Mediterranean University, 81000 Podgorica, Montenegro)

  • Gordana Radojević

    (Faculty of International Economics, Finance and Business, University of Donja Gorica, 81000 Podgorica, Montenegro
    Statistical Office of Montenegro-MONSTAT, 81000 Podgorica, Montenegro)

Abstract

The objective of this study was to estimate the sensitivity of spirit quantity demanded for price and income changes in Montenegro and to show the effectiveness of taxation-policy changes in the reduction of spirit consumption. It is the first study on this topic in Montenegro, where adverse effects of alcohol are recognized as an important obstacle in achieving Sustainable Development Goals (SDGs). The price elasticity of spirits was estimated using Deaton’s methodology on the Household Budget Survey (HBS) data in the period of 2006–2017. Cigarettes were included as a control variable as, along with spirits, they are one of the most harmful substances used in Montenegro. Using these results, we simulated the effects of spirit use on public revenue. The results show that the spirits’ own price elasticity equaled −0.45, while the cross-price elasticity equaled −0.17, showing that spirits and cigarettes are complementary goods. These results, along with elasticities calculated by sex (male, −0.55; female, −0.5), income groups (low income, −1.16; middle-income, −0.46; high-income, −0.26), and for the working-age group (−0.74), demonstrate that an increase in excise taxes could be a very efficient tool in decreasing the adverse effect of spirits and cigarettes on household member’s productivity, health, and budget, which is in line with SDGs. An efficient road map for sustainable development for Montenegro must include the reduction of health-harmful substance use through excise tax increase.

Suggested Citation

  • Tanja Laković & Ana Mugoša & Mirjana Čizmović & Gordana Radojević, 2019. "Impact of Taxation Policy on Household Spirit Consumption and Public-Finance Sustainability," Sustainability, MDPI, vol. 11(20), pages 1-15, October.
    • Handle: RePEc:gam:jsusta:v:11:y:2019:i:20:p:5858-:d:279033
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    References listed on IDEAS

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    Cited by:

    1. Imeda Tsindeliani & Sebastian Kot & Evgeniya Vasilyeva & Levon Narinyan, 2019. "Tax System of the Russian Federation: Current State and Steps towards Financial Sustainability," Sustainability, MDPI, vol. 11(24), pages 1-18, December.
    2. Vadim Zasko & Elena Sidorova & Vera Komarova & Diana Boboshko & Olesya Dontsova, 2021. "Digitization of the Customs Revenue Administration as a Factor of the Enhancement of the Budget Efficiency of the Russian Federation," Sustainability, MDPI, vol. 13(19), pages 1-17, September.

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