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Tax design in the alcohol market

Rachel Griffith (), Martin O'Connell and Kate Smith ()

No W17/28, IFS Working Papers from Institute for Fiscal Studies

Abstract: 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.

Keywords: externality; corrective taxes; alcohol (search for similar items in EconPapers)
JEL-codes: D12 D62 H21 H23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hea, nep-pbe, nep-pub and nep-reg
Date: 2017-12-11
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