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Optimal Alcohol Taxes for Australia

Author

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  • Fogarty James J.

    (University of Western Australia, James.Fogarty@uwa.edu.au)

Abstract

The 2010 Australian government tax review suggested Australia move to a uniform excise tax rate for all alcoholic beverages. Here, a model is presented and calibrated that shows the optimal per litre of pure alcohol (LAL) tax rates for beer, wine, spirits, and ready-to-drink spirits are substantially different to both current alcohol tax rates and the uniform tax rate recommended by the tax review. Specifically, given an individual consumer utility model, the best estimate values of the welfare maximising LAL tax rates are: $37 for beer, $11 for wine, $50 for spirits, and $77 for ready-to-drink spirits. The variation in the optimal tax rate across beverage types flows from differences in the externality costs associated with the consumption of each beverage type, and differences in the proportion of moderate consumption and abusive consumption associated with each beverage type. In addition, it is shown that the optimal tax rates are influenced by the range of costs that are considered to be externality costs, and the relative price responsiveness of abusers and moderate consumers.

Suggested Citation

  • Fogarty James J., 2012. "Optimal Alcohol Taxes for Australia," Forum for Health Economics & Policy, De Gruyter, vol. 15(1), pages 1-26, February.
    • Handle: RePEc:bpj:fhecpo:v:15:y:2012:i:2:n:2
    DOI: 10.1515/1558-9544.1276
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    References listed on IDEAS

    as
    1. Fogarty, James Joseph & Jakeman, Guy, 2011. "Wine tax reform: The impact of introducing a volumetric excise tax for wine," Working Papers 108667, University of Western Australia, School of Agricultural and Resource Economics.
    2. 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, June.
    3. James J. Fogarty & Guy Jakeman, 2011. "Wine Tax Reform: The Impact of Introducing a Volumetric Excise Tax for Wine," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 44(4), pages 387-403, December.
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    Cited by:

    1. Anurag Sharma & Brian Vandenberg & Bruce Hollingsworth, 2014. "Minimum Pricing of Alcohol versus Volumetric Taxation: Which Policy Will Reduce Heavy Consumption without Adversely Affecting Light and Moderate Consumers?," PLOS ONE, Public Library of Science, vol. 9(1), pages 1-13, January.

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    Keywords

    alcohol; tax; externality costs;
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