Economic Issues in Alcohol Taxation

Stephen Smith

in Theory and Practice of Excise Taxation

Published in print February 2005 | ISBN: 9780199278596
Published online October 2005 | e-ISBN: 9780191602856 | DOI:
Economic Issues in Alcohol Taxation

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Alcohol taxes and revenues vary widely in the EU, ranging from over 100 euros per capita in Scandinavian countries to less than 30 euros in Mediterranean countries. It is difficult to defend the high alcohol excises on ‘inverse-elasticity’ rounds (Ramsey rule). It is also unclear whether alcohol would be a complement or a substitute for leisure. To be sure, the taxation of alcohol sales helps to reduce the external costs generated by abusive consumers, but at the cost of reducing the consumer satisfaction of non-abusive consumers. The concerns that are sometimes raised about the regressivity of tobacco taxes do not apply with anything like the same force to alcohol taxes. In the US, a very large proportion of the net external cost associated with abusive alcohol consumption is accounted for by the valuation of alcohol-related traffic fatalities, whereas in UK studies, the largest items appear under the heading ‘social cost to industry’. The average external cost of alcohol consumption in the UK might be in the order of 17 per cent of the pre-tax price of alcohol. Narrowing differences in levels of alcohol taxation in EU member states would reduce the economic and fiscal costs associated with legal cross-border shopping.

Keywords: alcohol taxation; cross-border shopping; external costs

Chapter.  12654 words.  Illustrated.

Subjects: Financial Markets

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