Alcohol consumption generates negative externalities that are non-linear in the total amount of alcohol consumed. If tastes for products are heterogeneous and correlated with marginal externalities, then varying tax rates on different products can lead to welfare gains. We study this problem in an optimal tax framework and empirically for the UK market. We find that heavy drinkers have systematically different patterns of alcohol demands and welfare gains from optimally varying rates are higher the more concentrated externalities are among heavy drinkers.
Authors
CPP Co-Director, IFS Research Director
Rachel is Research Director and Professor at the University of Manchester. She was made a Dame for services to economic policy and education in 2021.
Research Fellow University of Wisconsin
Martin, previously Deputy Research Director, is a Research Fellow at IFS and Professor of Economics at the University of Wisconsin.
Research Fellow London School of Economics
Kate is an IFS Research Fellow and an Assistant Professor at LSE, interested in public finance, industrial organisation and applied microeconomics.
Journal article details
- DOI
- 10.1016/j.jpubeco.2018.12.005
- Publisher
- Elsevier
- Issue
- Volume 172, April 2019, pages 20-35
Suggested citation
R, Griffith and M, O'Connell and K, Smith. (2019). 'Tax design in the alcohol market' 172(2019), pp.20–35.
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