Role of alcohol taxes in moderating alcohol consumption: Current and future potential impacts.

Abstract

There is a substantial literature on the price elasticity of demand for alcoholic beverages, but the literature on the tax elasticity and the way tax rates impact the evolution of alcohol consumption through time is more limited. A two-level Bayesian hierarchical model is used to estimate tax and income elasticity values. The estimates from five different forecast methods are then averaged, and combined with the tax elasticity estimate, to investigate consumption for different scenarios. The sample consists of 30 high-income and upper-middle-income countries. The alcohol tax elasticity estimate is approximately -0.4 and the alcohol income elasticity estimate approximately 0.2. If alcohol taxes evolve the way they have in the past, there is little evidence to suggest that per capita alcohol consumption will be higher in 2027, relative to 2017; but if alcohol taxes remain constant over the next decade, it is likely that per capita alcohol consumption will be notably higher in 2027, relative to 2017, for the sample of countries considered. There is a natural tendency for alcohol consumption to increase with income. A working rule of thumb that can be used by policy makers to mitigate this effect is to increase alcohol tax rates at approximately half the long-run gross national income growth rate. For rich countries, this implies annual increases of approximately 1.0-1.5% in alcohol taxes.