The Efficiency of a Volumetric Alcohol Tax in Australia
Background: In Australia and elsewhere, fiscal measures such as alcohol taxation are a commonly used intervention and cost-effective strategy to reduce alcohol consumption and associated harm. However, alcohol taxation policies distort the market for alcohol, specifically increasing the marginal cost of alcohol. It is proposed that a volumetric tax, which taxes alcohol equally across all beverage types, is less distortive of consumer preferences and more efficient at reducing alcohol consumption than the current Australian tax model, where taxes are charged at varying amounts per litre of pure alcohol, depending on the beverage type. Objective: This paper quantifies the effect of four different alcohol taxation systems, relative to the current Australian system: two different types of volumetric taxation (deadweight loss neutral and tax revenue neutral); the recent strategy trialled in Australia of increasing the tax only on ready-to-drink alcoholic beverages (i.e. premixed spirits); and a tiered tax system, which may be more politically acceptable. Methods: A partial equilibrium approach was used to measure taxation revenue, consumer welfare and consumption in alcohol markets. Estimates of taxation revenue, consumer welfare and consumption were first calculated for 2008 and then compared with the four scenarios considered. Results: Relative to the previous alcohol taxation scheme in Australia, the taxation strategy that increased the tax solely on ready-to-drink alcoholic beverages increased taxation revenue by 479 million Australian dollars ($A), reduced pure alcohol consumption by 754 000 litres and increased the net deadweight loss of taxation by $A62 million. For a tax-neutral approach, for the same level of taxation revenue as is currently generated, a volumetric tax could substantially reduce the cost of taxation (as described by the net loss in consumer welfare) by $A177 million and reduce pure alcohol consumption by 4 68 000 litres. Under a deadweight loss-neutral scenario, for the same amount of deadweight loss generated from the previous taxation scenario, taxation revenue could be increased by $A1153 million, in addition to reducing pure alcohol consumption by 4 316 000 litres. A tiered taxation regime, as modelled here, could decrease pure alcohol consumption by 2 616 000 litres whilst increasing taxation revenue by $A1101 million. However, this scenario would also increase the deadweight loss of taxation by $A113 million. Conclusion: From these scenarios, it can be shown that, for the same tax revenue, consumer welfare can be reduced or, for the same level of loss to consumer welfare, taxation revenue can be increased. Both these scenarios result in a reduction of pure alcohol consumption.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
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.:
- Clements, Kenneth W. & Selvanathan, Saroja, 1991.
"The Economic Determinants Of Alcohol Consumption,"
Australian Journal of Agricultural Economics,
Australian Agricultural and Resource Economics Society, vol. 35(02), August.
- Kenneth W. Clements & Saroja Selvanathan, 1991. "The Economic Determinants Of Alcohol Consumption," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 35(2), pages 209-231, 08.
- K.W. Clements & S. Selvanathan, 1991. "The Economic Determinants of Alcohol Consumption," Economics Discussion / Working Papers 91-07, The University of Western Australia, Department of Economics.
- K.W. Clements, 1989. "The Economic Determinants of Alcohol Consumption," Economics Discussion / Working Papers 89-35, The University of Western Australia, Department of Economics.
- Xueyan Zhao, 2010.
"What Do the Bingers Drink? Micro-unit Evidence on Negative Externalities and Drinker Characteristics of Alcohol Consumption by Beverage Types,"
Wine Economics Research Centre Working Papers
2010-07, University of Adelaide, Wine Economics Research Centre.
- Preety Srivastava & Xueyan Zhao, 2010. "What Do the Bingers Drink? Micro-Unit Evidence on Negative Externalities and Drinker Characteristics of Alcohol Consumption by Beverage Types," Economic Papers, The Economic Society of Australia, vol. 29(2), pages 229-250, 06.
- Manning, Willard G. & Blumberg, Linda & Moulton, Lawrence H., 1995. "The demand for alcohol: The differential response to price," Journal of Health Economics, Elsevier, vol. 14(2), pages 123-148, June.
- Clements, Kenneth W & Johnson, Lester W, 1983.
"The Demand for Beer, Wine, and Spirits: A Systemwide Analysis,"
The Journal of Business,
University of Chicago Press, vol. 56(3), pages 273-304, July.
- K.W. Clements & L.W. Johnson, 1982. "The Demand for Beer, Wine and Spirits: A system-wide analysis," Economics Discussion / Working Papers 82-12, The University of Western Australia, Department of Economics.
- Craig A. Gallet, 2007.
"The demand for alcohol: a meta-analysis of elasticities,"
Australian Journal of Agricultural and Resource Economics,
Australian Agricultural and Resource Economics Society, vol. 51(2), pages 121-135, 06.
- Gallet, Craig A., 2007. "The demand for alcohol: a meta-analysis of elasticities," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 51(2), June.
When requesting a correction, please mention this item's handle: RePEc:wkh:aheahp:v:10:y:2012:i:1:p:37-49. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dave Dustin)
If references are entirely missing, you can add them using this form.