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Empirical Application of Optimal Commodity Tax Theory to Taxation of Alcoholic Beverages

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  • Holm, Pasi
  • Suoniemi, Ilpo

Abstract

This paper concerns the calculation of optimal taxes on commodities that contain a common externality-generating component. The first-best solution is characterized by a form of marginal cost pricing with production costs increased according to the harm content of commodities valued at marginal external cost. An application to Finnish alcohol consumption data is made to indicate how the trade-off between control and revenue requirements affects taxes. By bootstrapping the estimates, taxes are found to be less sensitive than compensated elasticities. Copyright 1992 by The editors of the Scandinavian Journal of Economics.

Suggested Citation

  • Holm, Pasi & Suoniemi, Ilpo, 1992. "Empirical Application of Optimal Commodity Tax Theory to Taxation of Alcoholic Beverages," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(1), pages 85-101.
    • Handle: RePEc:bla:scandj:v:94:y:1992:i:1:p:85-101
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    Cited by:

    1. Conniffe, Denis & McCoy, Daniel, 1993. "Alcohol Use in Ireland: Some Economic and Social Implications," Research Series, Economic and Social Research Institute (ESRI), number GRS160, June.
    2. James Fogarty, 2010. "The Demand For Beer, Wine And Spirits: A Survey Of The Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 24(3), pages 428-478, July.
    3. Pasi Holm, 1995. "Alcohol policy harmonization and trade liberalization in the Nordic countries," Finnish Economic Papers, Finnish Economic Association, vol. 8(1), pages 17-24, Spring.

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