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Fiscal and Externality Rationales for Alcohol Taxes

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  • Parry, Ian W.H.

    (Resources for the Future)

  • Laxminarayan, Ramanan

    (Resources for the Future)

  • West, Sarah E.

Abstract

This paper develops and implements an analytical framework for estimating the optimal levels and welfare effects of alcohol taxes and drunk-driver penalties, accounting for externalities and how policies interact with the broader fiscal system. We find that the fiscal component of the optimal alcohol tax exceeds the externality-correcting component under many parameter scenarios and assumptions about revenue recycling; overall, the optimal tax is anything from three to more than ten times the current tax. For more incremental reforms, however, welfare gains from stiffer drunk-driver fines and non-pecuniary penalties are larger, even though they involve implementation costs, possible first-order deadweight losses, and fiscal considerations play a minor role. In contrast to current practice, fiscal considerations warrant relatively heavier taxation of beer and relatively lighter taxation of spirits.

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  • Parry, Ian W.H. & Laxminarayan, Ramanan & West, Sarah E., 2006. "Fiscal and Externality Rationales for Alcohol Taxes," RFF Working Paper Series dp-06-51, Resources for the Future.
    • Handle: RePEc:rff:dpaper:dp-06-51
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    Cited by:

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    4. Bossi, Luca & Calcott, Paul & Petkov, Vladimir, 2011. "Optimal Tax Rules for Addictive Consumption," Working Paper Series 1673, Victoria University of Wellington, School of Economics and Finance.
    5. Katarina Nordblom, 2011. "The complex attitudes to alcohol taxation," Applied Economics, Taylor & Francis Journals, vol. 43(24), pages 3355-3364.
    6. Christopher Doran & Thameemul Jainullabudeen, 2010. "Economic efficiency of alcohol policy," Applied Health Economics and Health Policy, Springer, vol. 8(5), pages 351-354, September.

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    More about this item

    Keywords

    alcohol tax; drunk-driver penalty; fiscal effects; external costs; welfare effects;
    All these keywords.

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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