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The Welfare Effects Of Alcohol Taxation

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  • Irvine, Ian J.
  • Sims, William A.

Abstract

This paper analyses the question of how to appropriately tax alcoholic beverages at a disaggregated level. Using the theory of tax reform, the social cost of raising revenue from different alcoholic beverages is calculated. The externality associated with alcohol consumption is explicitly modeled. In conjunction with unusually high wedges between producer and consumer prices, this leads to results rarely encountered in the literature of the welfare effects of taxation. The problem is approached by building a multistage budgeting model of expenditure. This is necessitated by the availability of elasticity information only for aggregates of the goods in question while pricing policy must be developed at a more disaggregated level. The model is applied to a data set for 1989 for the province of Ontario, Canada. We find that there is a major scope for welfare-improving tax changes, but that such changes depend crucially upon the magnitude of the externality associated with alcohol consumption.

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File URL: http://hdl.handle.net/2123/7443
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Bibliographic Info

Paper provided by University of Sydney, School of Economics in its series Working Papers with number 169.

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Date of creation: Dec 1991
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Handle: RePEc:syd:wpaper:2123/7443

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Web page: http://sydney.edu.au/arts/economics
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Cited by:
  1. James, Simon & Alley, Clinton, 2002. "Tax compliance, self-assessment and tax administration," MPRA Paper 26906, University Library of Munich, Germany.

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