Tobacco and Alcohol Excise Taxes for Improving Public Health and Revenue Outcomes: Marrying Sin and Virtue?

Excise taxes on alcohol and tobacco have long been a dependable and significant revenue source in many countries. More recently, considerable attention has been paid to the way in which such taxes may also be used to attain public health objectives by reducing the consumption of products with adverse health and social impacts. Some have gone further and argued that explicitly earmarking excise taxes on alcohol and tobacco to finance public health expenditures – marrying sin and virtue as it were – will both make increasing such taxes more politically acceptable and provide the funding needed to increase such expenditures, especially for the poor. The basic idea -- tax ‘bads’ and do ‘good’ with the proceeds -- is simple and appealing. But designing and implementing good ‘sin’ taxes is a surprisingly complex task. Earmarking revenues from such taxes for health expenditures may also sound good and be a useful selling point for new taxes. However, such earmarking raises difficult issues with respect to both budgetary rigidity and political accountability. This note explores these and other issues that lurk beneath the surface of the attractive concept of using increased sin excises on alcohol and tobacco to finance ‘virtuous’ social spending on public health.