Alcohol tax
[9] Following the Revolutionary War, a tax on distilled spirits in 1791 was the first act of taxation by the newly-formed federal government of the United States.
These duties were instituted by governments to raise needed revenues, which is effective if consumption does not respond very much to tax-induced changes in retail prices.
This page reviews evidence for alcohol excises to be effective in reducing heavy drinking, with a focus on conditions in the US and other developed countries.
[18] Based on considerations of cost-effectiveness, fairness, and feasibility, WHO identified several policy options as "best buys" for reducing alcohol-related harms.
[31] States with the highest share of general revenue from alcohol taxes are Tennessee (0.7%), Alabama (0.6%), and North Carolina (0.6%).
"[36] There also are social costs from excessive use of alcohol that have resulted in political pressures for federal, state, and local tax increases.
Excess burden is the deadweight loss in consumer surplus over and above increased tax payments that are a transfer to the governmental body.
Third, the price increase is expected to affect consumer behaviors so that adverse effects of alcohol consumption are altered or reduced.
Second, the market might be non-competitive and rival producers strategize on pass-throughs, which depend generally on complex features of demand functions.
A general finding is that demand for alcohol beverages is price inelastic, meaning a 10% increase in own-price will result in a less than 10% decrease in consumption.
An increase in taxes on wine will induce a shift in legal consumption toward beer or spirits as relative prices change.
A substantial literature exists in public health and economics on statistical effects of alcohol prices (or taxes) on drinking behaviors and a variety of alcohol-related harms.
An alternative empirical method is to examine drinking outcomes on a before-after basis ‒ a natural experiment ‒ based on a given change in alcohol policy.
A summary is presented for empirical studies that examine alcohol-related harms on a before-after basis following important policy changes.
Two systematic surveys provide broad-based analysis of economic and public health studies of prices and excessive drinking by adults and youth.
Fourth, a review of eleven primary studies of binge drinking using natural experiments and field methods found only three that reported significant results.
[67] The authors conclude that drinker heterogeneity is crucial to economic welfare analysis since higher taxes will fall on both groups and could fail to reduce alcohol-related externalities.
Before-after studies examine the impact of policy changes on drinking behaviors and alcohol-related harms, such as drink-driving, violent crime, and liver cirrhosis.
Particular attention has been paid to the Nordic countries due to changes in alcohol policies following tax harmonization in the European Union in 2003-2004.
[74][75] A survey by Nelson and McNall (2016) summarizes the substantial literature that uses natural experiments, including 45 primary studies covering nine countries (Australia, Denmark, Finland, Hong Kong, Iceland, Russia, Sweden, Switzerland, United States).
This conclusion is reinforced in a second review by Nelson and McNall (2017) of additional results from 29 primary studies covering five countries (Denmark, Finland, Hong Kong, Sweden, Switzerland).
[77] Only 4 of 18 studies reported positive effects of reduced alcohol prices on binge drinking for all age groups; only 4 of 18 studies reported positive results for prices and alcohol consumption by youth and young adults; and the policy changes examined had little effect on heavy drinking by adults.
Political factors are expected to impact the magnitude and structure of alcohol excise taxes as revenue devices or as corrective user fees.
[79][80][81][82][83][84][85][86] A central tenet of public choice is that politicians and bureaucrats are self-interested and operate to help ensure their electability or budget size and authority.
Competition for political favors among various interest groups is labeled by economists as rent-seeking behavior, which imposes real costs on society.
[90] It also helps enactment and enforcement of regulations if rewards to beneficiaries are concentrated on a per capita basis, and costs to others are wide-spread and dispersed.
These political forces are frequently at work in discussion and debate over alcohol as selective excise taxation is largely a distributive issue.
As taxes are levied on a per unit or volumetric basis, non-taxable product attributes can be affected such as age of a brand of Scotch or its packaging.
"[2] This distortion or efficiency loss is ignored in cost-benefit calculations and cost-effectiveness analyses (as an externality imposed on moderate drinkers).
From a public choice perspective, more precisely targeted regulatory policies are available such as increased penalties for drunk driving or underage drinking.
