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Fiscal and Externality Rationales for Alcohol Taxes

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Author Info
Parry, Ian W.H. () (Resources for the Future)
Laxminarayan, Ramanan () (Resources for the Future)
West, Sarah E.

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Abstract

This paper develops and implements an analytical framework for estimating the optimal levels and welfare effects of alcohol taxes and drunk-driver penalties, accounting for externalities and how policies interact with the broader fiscal system. We find that the fiscal component of the optimal alcohol tax exceeds the externality-correcting component under many parameter scenarios and assumptions about revenue recycling; overall, the optimal tax is anything from three to more than ten times the current tax. For more incremental reforms, however, welfare gains from stiffer drunk-driver fines and non-pecuniary penalties are larger, even though they involve implementation costs, possible first-order deadweight losses, and fiscal considerations play a minor role. In contrast to current practice, fiscal considerations warrant relatively heavier taxation of beer and relatively lighter taxation of spirits.

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Paper provided by Resources For the Future in its series Discussion Papers with number dp-06-51.

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Date of creation: 22 Nov 2006
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Handle: RePEc:rff:dpaper:dp-06-51

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Related research
Keywords: alcohol tax; drunk-driver penalty; fiscal effects; external costs; welfare effects;

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Find related papers by JEL classification:
I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Luca Bossi & Pedro Gomis-Porqueras & David L. Kelly, . "Optimal Second Best Taxation of Addictive Goods," Working Papers 0708, University of Miami, Department of Economics. [Downloadable!]
  2. Nordblom, Katarina, 2006. "The Complex Attitudes to Alcohol Taxation," Working Papers in Economics 207, Göteborg University, Department of Economics. [Downloadable!]
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