Abstract
AbstractThis paper addresses the issue of whether tax revenue from alcohol lost through cross‐border shopping could be recouped by cutting excise duties. This in turn depends on the elasticity of demand for alcohol.We use data from the Family Expenditure Survey 1978–96 to estimate own‐ and cross‐price elasticities of demand for beer, wine and spirits before and after completion of the Single Market. We find no evidence of a significant change in elasticities after the Single Market. The tax rates on beer and wine are currently below their revenue‐maximising rates, implying that a cut in the duty rate on beer or wine would lead to a decrease in indirect tax revenue from alcohol. We cannot reject that the current tax rate on spirits is at the revenue‐maximising rate, implying that further increases in the duty on spirits are likely to cause indirect tax revenue to fall.
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