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Optimal alcohol taxes for Australia

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  • Fogarty, James Joseph

Abstract

Objective : To estimate welfare maximising tax rates for beer, wine, and spirits using a mathematical model that considers both the welfare loss alcohol taxes impose on non-abusive consumers and the welfare gains due to alcohol taxes reducing externality costs. Results : Optimal per litre of pure alcohol (LAL) tax rates are substantially different to both current alcohol tax rates and the uniform tax rate recommended as part of the 2010 Australian Government Tax Review. Given an individual consumer utility decision 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. Conclusion : As externality costs and the responsiveness of consumers to price changes are different for each alcohol type, community welfare is maximised by setting beverage specific LAL tax rates.

Suggested Citation

  • Fogarty, James Joseph, 2011. "Optimal alcohol taxes for Australia," Working Papers 108669, University of Western Australia, School of Agricultural and Resource Economics.
    • Handle: RePEc:ags:uwauwp:108669
    DOI: 10.22004/ag.econ.108669
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    References listed on IDEAS

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    4. Pogue, Thomas F & Sgontz, Larry G, 1989. "Taxing to Control Social Costs: The Case of Alcohol," American Economic Review, American Economic Association, vol. 79(1), pages 235-243, March.
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