Tax design in the alcohol market

Published on 11 December 2017

This Working Paper is an update of Design of optimal corrective taxes in the alcohol market

This Working Paper has been replaced by Design of optimal corrective taxes in the alcohol market

We study optimal corrective taxation in the alcohol market. 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.

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We study optimal corrective taxation in the alcohol market. 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 alcohol market. Welfare gains from optimally varying rates are higher the more concentrated externalities are amongst heavy drinkers. A sufficient statistics approach is informative about the direction of reform, but not about optimal rates when externalities are highly concentrated.

This is an updated version of previous working paper see here.

 

    Authors

    Rachel Cassidy
    Rachel Griffith

    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.

    Martin O'Connell
    Martin O'Connell

    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.

    Kate Smith
    Kate Smith

    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.

    Working Paper details

    DOI
    10.1920/wp.ifs.2017.W1728
    Publisher
    The IFS

    Suggested citation

    R, Griffith and M, O'Connell and K, Smith. (2017). Tax design in the alcohol market. London: The IFS. Available at: https://ifs.org.uk/publications/tax-design-alcohol-market (accessed: 3 December 2024).

    Grant

    Empirical evidence on the formation of habits, self-control and non-separabilities in food choices (FOODHABITS) Centre for the Microeconomic Analysis of Public Policy (CPP), 2015-2020 Developing robust methods for evaluating policies in the markets for food and nutrition

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