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An Optimal-Tax Approach to Alcohol Policy

  • Thomas Aronsson
  • Tomas Sjögren

This paper deals with optimal income and commodity taxation in an economy, where alcohol is an externality-generating consumption good. In our model, alcohol can be bought domestically, imported, or produced illegally. Border trade alone implies an incentive to set the domestic alcohol tax below the marginal social damage of alcohol, and to tax (subsidize) commodities that are complementary with (substitutable for) alcohol. The income tax will also be used as a corrective instrument. Furthermore, although the effects of adding illegal production are ambiguous in general, a realistic outcome is, nevertheless, that it reduces both the optimal alcohol tax and the marginal income tax rate.

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Article provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.

Volume (Year): 66 (2010)
Issue (Month): 2 (June)
Pages: 153-169

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Handle: RePEc:mhr:finarc:urn:sici:0015-2218(201006)66:2_153:aoatap_2.0.tx_2-b
DOI: 10.1628/001522108X524197
Contact details of provider: Web page: https://www.mohr.de/fa

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  1. Ian Crawford & Sarah Tanner, 1995. "Bringing it all back home: alcohol taxation and cross-border shopping," Fiscal Studies, Institute for Fiscal Studies, vol. 16(2), pages 94-114, May.
  2. Thomas Aronsson & Tomas Sjögren, 2004. "Is the Optimal Labor Income Tax Progressive in a Unionized Economy?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(4), pages 661-675, December.
  3. Aronsson, Thomas & Sjogren, Tomas, 2004. "Efficient taxation, wage bargaining and policy coordination," Journal of Public Economics, Elsevier, vol. 88(12), pages 2711-2725, December.
  4. Blomquist, Sören & Micheletto, Luca, 2003. "Age Related Optimal Income Taxation," Working Paper Series 2003:7, Uppsala University, Department of Economics.
  5. Christiansen, Vidar, 1984. "Which commodity taxes should supplement the income tax?," Journal of Public Economics, Elsevier, vol. 24(2), pages 195-220, July.
  6. Aronsson, Thomas & Thunström, Linda, 2008. "A note on optimal paternalism and health capital subsidies," Economics Letters, Elsevier, vol. 101(3), pages 241-242, December.
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