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Designing alcohol taxes: Evidence from the UK market

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Governments have long used taxation to correct for the socially costly overconsumption of alcohol, but as the external cost of overconsumption varies across drinkers, a single tax rate is not optimal. This column argues that variation in preferences for different products and in price responsiveness across heavy and light drinkers provides scope to improve welfare by varying tax rates across alcohol products. The proposed framework is well suited to addressing other sources of external costs, such as obesity.

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IFS Working Paper W17/02
Presentation given at CREST, Paris.
Newspaper article
Heavy drinkers have a higher social cost than other drinkers and are more responsive to changes in alcohol prices, say the Institute for Fiscal Studies. So why not raise taxes on the high-strength drinks they most often consume?
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