The Role of Health Economics in Alcohol Policy

Abstract

In a 2010 editorial, Doran and Jainullabudeen[1] outlined the potential role health economics can play in the development and implementation of alcohol policy. In particular, efficiency can be attained when the negative externalities due to alcohol consumption can be reduced and where the socially optimum level of alcohol is consumed. A socially optimum level can be thought of as one where the marginal cost of reducing associated harm is equal to the marginal benefit from reduced harm.[2] This optimum level requires an assessment of both supply-side factors (availability, marketing and price of alcohol) and demand-side factors (taste, willingness, preferences and income) and the interactions of these factors in minimizing alcohol misuse.[3] With the aim of enhancing the evidence base related to the role of health economics in alcohol policy, Applied Health Economics and Health Policy invited submission of original work to be published in this special issue. After a rigorous peer-review process, three original research articles are presented that focus on the impact and role of pricing strategies. Byrnes et al.[4] consider the efficiency of a volumetric alcohol tax in Australia; Ataguba[5] examines alcohol policy and taxation in South Africa and Ludbrook et al.[6] present research aimed at addressing alcohol misuse using a minimum pricing approach in the UK. Each article offers a unique contribution to the literature and enhances our limited understanding of the potential role health economics can play in the development of efficient and equitable alcohol policy. Byrnes et al.[4] quantify the economic impact of four different alcohol taxation systems, relative to the current Australian system: two different types of volumetric taxation (deadweight loss neutral and tax revenue neutral); the recent strategy trialled in Australia of increasing the tax only on ready-to-drink alcoholic beverages; and a tiered tax system, which may be more politically acceptable. A partial equilibrium approach was used to measure taxation revenue and deadweight loss in alcohol markets. The results of the analysis suggest that a volumetric tax on alcohol, relative to the current system, can reduce pure alcohol consumption for the same amount of tax revenue collected and increase consumer welfare, or, for the same level of loss to consumer welfare, taxation revenue can be increased. A tiered taxation system, as considered by the National Preventative Taskforce,[7] appears to achieve some benefit relative to current practice, but is not as efficient as an unmixed volumetric tax. Specifically, compared with the deadweight loss neutral scenario, a tiered taxation system is associated with an increased deadweight loss of taxation, less taxation revenue collected by government and a smaller reduction in pure alcohol consumption. However, the ability of taxation policy to reduce pure alcohol consumption for the least amount of deadweight loss may only be one consideration of alcohol taxation policy. As Ataguba[5] notes, the application of alcohol taxation policy on efficiency grounds is difficult to impose in reality and the goal of alcohol taxation as it relates to equity is also an important consideration, especially in a highly unequal society like South Africa. Ataguba[5] empirically examines the distribution of economic burden (i.e. the tax incidence) that taxes on alcoholic beverages place on households in South Africa. Using data from the 2005/06 South African Income and Expenditure Survey, Ataguba suggests that the taxation of alcohol in South Africa is regressive, with the most regressive tax on local beer and the least regressive on spirits. In the context of these findings, Ataguba[5] contends that within South Africa, alcohol tax policy built on the principle of 'the drinker should pay' has produced a regressive distribution of tax that has had little impact on per capita consumption over the years. Ataguba[5] comments that it is important to gain a better understanding of the current pattern of drinking and explore why the poor drink and thereby bear a greater burden of alcohol taxes. …