Alcohol Taxes – Healthcare Economist


New Year’s Eve is a day with significant alcohol consumed. In fact, New Year’s Eve falls behind only Mardi Gras in terms of the number of drinks consumed for that holiday. According to the National Institute of Health, excess alcohol consumption has a number health consequences including impacts on the brain, heart (increased risk of cardiomyopathy, arrhythmias, stroke, high blood pressure), liver (increased risk of steatosis, hepatitis, fibrosis, cirrhosis), pancreatitis, and increased risk of various cancers.

One way policymakers can address this issue is with an alcohol tax. Alcohol taxes disincentivize the use of alcohol without having the problems of an outright prohibition. A paper by Wagenaar et al. (2010) conducts a systematic review of these alcohol policies.

Public policies affecting the price of alcoholic beverages have significant effects on alcohol-related disease and injury rates. Our results suggest that doubling the alcohol tax would reduce alcohol-related mortality by an average of 35%, traffic crash deaths by 11%, sexually transmitted disease by 6%, violence by 2%, and crime by 1.4%.

While alcohol taxes seem like a good thing, there are some drawbacks. First, alcohol use and death are more highly concentrated in socially disadvantaged groups. Thus, alcohol taxes may increase financial inequalities. Additionally, high alcohol taxes–particularly if alcohol tax rates vary by state–may encourage bootlegging and other illegal activity.

In the past, alcohol taxes had other unintended consequences. Consider the case of an alcohol tax passed in 1864 of $2 per gallon ($30 per gallon in today’s dollars). As described in the book Energy: A Human History by Richard Rhodes:

The alcohol tax was intended to assess beverage alcohol, but it failed to exclude industrial and illuminating alcohol. The high tax, raising the price of those alcohols to about $2.50 per gallon, drove the fuel out of the market just as petroleum-derived kerosene was entering it.

In fact, in 1860, 80% of grain alcohol was used a component of burning fluids to provide light; only 20% was used for beverage consumption at that time.


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