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Tax design in the alcohol market

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  • Griffith, Rachel
  • O’Connell, Martin
  • Smith, Kate

Abstract

Alcohol consumption generates negative externalities that are non-linear in the total amount of alcohol consumed. If tastes for products are heterogeneous and correlated with marginal externalities, then varying tax rates on different products can lead to welfare gains. We study this problem in an optimal tax framework and empirically for the UK market. We find that heavy drinkers have systematically different patterns of alcohol demands and welfare gains from optimally varying rates are higher the more concentrated externalities are among heavy drinkers.

Suggested Citation

  • Griffith, Rachel & O’Connell, Martin & Smith, Kate, 2019. "Tax design in the alcohol market," Journal of Public Economics, Elsevier, vol. 172(C), pages 20-35.
  • Handle: RePEc:eee:pubeco:v:172:y:2019:i:c:p:20-35
    DOI: 10.1016/j.jpubeco.2018.12.005
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    Cited by:

    1. Calcott, Paul, 2019. "Minimum unit prices for alcohol," Journal of Health Economics, Elsevier, vol. 66(C), pages 18-26.
    2. Biondi, Beatrice & Cornelsen, Laura & Mazzocchi, Mario & Smith, Richard, 2020. "Between preferences and references: Asymmetric price elasticities and the simulation of fiscal policies," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 108-128.
    3. Benjamin Dachis, 2018. "Fiscal Soundness and Economic Growth: An Economic Program for Ontario," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 505, March.
    4. Gehrsitz, Markus & Saffer, Henry & Grossman, Michael, 2020. "The Effect of Changes in Alcohol Tax Differentials on Alcohol Consumption," IZA Discussion Papers 13198, Institute of Labor Economics (IZA).
    5. Nelson, Jon Paul, 2020. "Fixed-effect versus random-effects meta-analysis in economics: A study of pass-through rates for alcohol beverage excise taxes," Economics Discussion Papers 2020-1, Kiel Institute for the World Economy (IfW).
    6. Hindriks, Jean & Serse, Valerio, 2019. "Heterogeneity in the tax pass-through to spirit retail prices: Evidence from Belgium," Journal of Public Economics, Elsevier, vol. 176(C), pages 142-160.
    7. Sijbren Cnossen, 2020. "Excise Taxation for Domestic Resource Mobilization," CESifo Working Paper Series 8442, CESifo.
    8. Rosella Levaggi & Carmen Marchiori & Paolo Panteghini, 2020. "Lifestyle Taxes in the Presence of Profit Shifting," CESifo Working Paper Series 8138, CESifo.
    9. Rachel Griffith & Martin O'Connell & Kate Smith & Rebekah Stroud, 2020. "What's on the Menu? Policies to Reduce Young People's Sugar Consumption," Fiscal Studies, John Wiley & Sons, vol. 41(1), pages 165-197, March.
    10. Ce Shang & Anh Ngo & Frank J. Chaloupka, 2020. "The pass-through of alcohol excise taxes to prices in OECD countries," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 21(6), pages 855-867, August.

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    More about this item

    Keywords

    Externality; Corrective taxes; Alcohol;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • 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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