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Optimal alcohol taxation: Simulation results for Estonia


  • Indrek Saar

    () (Estonian Academy of Security Sciences)


The aim of this paper is to empirically estimate the optimal level of alcohol taxes for Estonia on externality as well as fiscal grounds. For this purpose, a static general-equilibrium model with a representative agent was used. Simulation results showed that raising alcohol taxes a certain amount is warranted. However, if one were to use conservative parameter values, this result is undermined. With an eye towards future research, more reliable estimates for several parameters are required in order to increase the policy relevance of the model.

Suggested Citation

  • Indrek Saar, 2011. "Optimal alcohol taxation: Simulation results for Estonia," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 11(1), pages 65-90, July.
  • Handle: RePEc:bic:journl:v:11:y:2011:i:1:p:65-90

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    References listed on IDEAS

    1. Thomas Aronsson & Tomas Sjögren, 2010. "An Optimal-Tax Approach to Alcohol Policy," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 66(2), pages 153-169, June.
    2. Karsten Staehr, 2008. "Estimates of employment and welfare effects of personal labour income taxation in a flat-tax country : The case of Estonia," Bank of Estonia Working Papers 2008-03, Bank of Estonia, revised 30 Oct 2008.
    3. repec:aph:ajpbhl:10.2105/ajph.2009.186007_1 is not listed on IDEAS
    4. Williams III, Roberton C., 2003. "Health effects and optimal environmental taxes," Journal of Public Economics, Elsevier, vol. 87(2), pages 323-335, February.
    5. Kenkel, Donald S, 1996. "New Estimates of the Optimal Tax on Alcohol," Economic Inquiry, Western Economic Association International, vol. 34(2), pages 296-319, April.
    6. Pogue, Thomas F & Sgontz, Larry G, 1989. "Taxing to Control Social Costs: The Case of Alcohol," American Economic Review, American Economic Association, vol. 79(1), pages 235-243, March.
    7. Lawrence H. Goulder & Ian W. H. Parry & Dallas Burtraw, 1996. "Revenue-Raising vs. Other Approaches to Environmental Protection: The Critical Significance of Pre-Existing Tax Distortions," NBER Working Papers 5641, National Bureau of Economic Research, Inc.
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    More about this item


    alcohol; externalities; optimal tax;

    JEL classification:

    • 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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