Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/173960
Authors: 
Griffith, Rachel
O'Connell, Martin
Smith, Kate
Year of Publication: 
2017
Series/Report no.: 
IFS Working Papers W17/02
Abstract: 
Alcohol consumption is associated with costs to society due to its impact on crime and health. Tax can lead consumers to internalise these externalities. We study optimal corrective taxation in the alcohol market. We allow for the fact that the externality generating commodity (ethanol) is available in many differentiated products, over which consumers might have heterogeneous preferences, and that there may also be heterogeneity in marginal externalities across consumers. We show that, if there is correlation in preferences and marginal externalities, setting different tax rates across products can improve welfare relative to a single tax rate on ethanol. We estimate a model of demand in the UK alcohol market and numerically solve for the optimal tax rates. Moving to an optimal system that taxes alcohol types at different rates would close half of the welfare gap between the current UK system and the first best.
Subjects: 
externality
corrective taxes
alcohol
JEL: 
D12
D62
H21
H23
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size
829.11 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.