Abstract
This article compares the effects of two policies aimed at promoting efficiency in the taxation of alcoholic beverages. One policy is to set alcohol tax rates at a level that corrects for excessive social costs of alcohol consumption. The second is to view alcohol taxes as a substitute for other taxes and apply the prescriptions of optimal tax theory to attain the efficient mix of tax revenues. Estimates of the differential effects of the two policies suggest that the second policy requires a higher tax rate on alcohol and produces a greater welfare gain.
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