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The pass-through of alcohol excise taxes to prices in OECD countries

Author

Listed:
  • Ce Shang

    (The Ohio State University Wexner Medical Center)

  • Anh Ngo

    (Oklahoma Tobacco Research Center, Stephenson Cancer Center, University of Oklahoma Health Sciences Center)

  • Frank J. Chaloupka

    (University of Illinois at Chicago)

Abstract

Tax pass-through rates to prices measure how much prices increase when taxes are increased by one unit, which will in turn determine the effectiveness of taxation policies in reducing substance use. Using longitudinal data of alcohol prices and excise taxes from 27 Organization for Economic Cooperation and Development (OECD) countries from 2003 to 2016, we estimate the tax pass-through rates to prices for a variety of alcoholic beverages—beer (1.24; 95% CIs: [0.67, 1.81]), wine (2.4; 95% CIs: [1.7, 3.11]), Cognac (1.71; 95% CIs: [1.07, 2.35]), Gin (0.85; 95% CIs: [0.34, 1.35]), Scotch whisky (1.14; 95% CIs: [0.52, 1.75]), and Liqueur Cointreau (1.98; 95% CIs: [1.21, 2.76]). While excise taxes on wine, Cognac, and Liqueur Cointreau are over-shifted to prices, taxes on Gin are exact- or under-shifted. Excise taxes on beer and Scotch whisky are likely over-shifted to prices, but the tax pass-through rates for these beverages are not significantly different from 1 and we cannot completely rule out exact pass-through of taxes to prices. The tax pass-through to prices for most beverage types is also higher for higher-priced products. Dynamic model further shows a lagged impact of wine and beer taxes on prices, indicating pricing strategies that may target lower-priced beer and wine.

Suggested Citation

  • Ce Shang & Anh Ngo & Frank J. Chaloupka, 2020. "The pass-through of alcohol excise taxes to prices in OECD countries," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 21(6), pages 855-867, August.
    • Handle: RePEc:spr:eujhec:v:21:y:2020:i:6:d:10.1007_s10198-020-01177-w
    DOI: 10.1007/s10198-020-01177-w
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    1. Chris Sampson’s journal round-up for 3rd August 2020
      by Chris Sampson in The Academic Health Economists' Blog on 2020-08-03 11:00:00

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    More about this item

    Keywords

    Alcoholic beverages; Alcohol excise taxes; Prices; Tax pass-through rates;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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