Alcohol Taxes To Reduce Consumption May Not Produce The Intended Result
By Thomas Pellechia
June 14, 2020
“The rise in alcohol taxes since 2008 is, in part, due to an alliance of government and temperance interests.”
So says Kym Anderson, School of Economics, University of Adelaide, Australia, and Crawford School of Public Policy, Australian National University.
Anderson makes that claim in the conclusion section of his research abstract, “Consumer Taxes on Alcohol: An International Comparison Over Time,” released recently in the Journal of Wine Economics, Volume 15, Number 1, 2020.
The abstract notes that in many countries, health lobbyists, “…argue that the negative effects of alcoholic drinking on individual consumers’ health and their social behavior, and the externalities that can impose on their household and on society more generally, require high taxes on alcohol consumption in addition to other regulations.”
The basis for Anderson’s research is that, “Virtually all countries tax the domestic consumption of some, if not all, alcoholic beverages. However, the rates of taxation, and the types of tax instruments used, vary enormously between countries.” He also points out taxes vary within each country, and they also vary between beverages, and “…often between qualities and styles of each beverage.”
The project computed beverage alcohol tax data across 42 high and middle-income countries, in which he uncovered wide variations in tax rates as well as the differences in the tax instruments applied, which he says indicates “…differing strengths of health and welfare lobbyists and industry groups in influencing government decision-making.”
Because alcohol taxes vary across countries as well as across beverage types and drinking/eating patterns, Anderson claims the impact of alcohol taxes on different types of households are uneven.
Net wine importer countries can and often do apply tariffs, which is the equivalent of a consumption tax as well as a subsidy for domestic producers. Of course, a tariff is applied before beverage alcohol is subject to excise or sales taxes. Anderson says, “Where a nation’s climate rules out any likelihood of stimulating domestic wine production, the tariff could serve as an exact substitute for a wine excise or sales tax.”
If the aim of increased tariffs is to discourage alcohol consumption in general it’s probably the wrong way to go about it, because, as Anderson points out, “…the use of trade instruments such as an import tariff is likely to encourage excessive domestic production…”
Anderson speculates, “…industry counter-lobbying has been uneven and/or has been successful in making the case that wine consumption is generally less harmful than other alcohol consumption, as taxes are generally lower on wine than on beer and even more so on spirits.”
Across the 42 countries in this study, on average the Consumer Tax on Alcohol (CTE) unweighted average from 2008 to 2018 was U.S. $11.40 per liter for wine compared with almost $14 per liter for beer and $25 for spirits. As a percentage of the pre-tax wholesale price, wine taxes averaged 22%, beer at 29% and spirits at 75%. When excise taxes were added to import taxes, and the value-added tax imposed by many countries, “…the combined taxes averaged around 50% for wine and beer in 2008 and 60% in 2018, and around twice that for spirits.”
Wine tax rates that have risen since 2008 were mainly in non-wine-producing countries.
Anderson claims, “Northwest European countries have the highest overall rates of taxation of alcohol consumption, while the United States, Germany, Italy, and Japan have among the lowest taxes. The CTE range is from less than 20% to more than 120%. The changes in the past decade also range widely, from small declines in a handful of countries to major increases in Nordic countries.”
Maybe from that data Anderson can tell us which countries are making the larger or smaller effort to curtail alcohol consumption for health or other reasons, but he doesn’t. Instead, he says, “Generally, wine is taxed least (at almost zero in Europe’s wine-producing countries and not at all in Argentina) and spirits most.”
In his conclusion, Anderson notes that, “Designing optimal policies to curb the worst adverse impacts of alcohol consumption clearly is far from straightforward. But it is equally clear that taxation imposed according to a product’s perceived value (ad valorem) is not likely to be the first-best tax instrument. It will be interesting to see when and where increased health lobbying is able to bring about a change from ad valorem to specific taxation of alcohol consumption.”