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Benjamin Bittschi, Ines Fortin, Sebastian Koch, Richard Sellner, Simon Loretz, Gregor Zwirn
Price Elasticities and Implied Tax Revenue for Alcoholic Beverages. Evidence from Poland, France and Spain
WIFO Working Papers, 2019, (579), 97 Seiten
Online seit: 11.04.2019 0:00
The study estimates the tax revenue effects of changes in alcohol excise taxes for Spain, France and Poland. In addition to excise tax and VAT revenue effects, the price pass-through and the impact on market volumes is estimated. The main parameters – the tax pass-through rate of excise duties to consumer prices and the price elasticities of demand for alcoholic beverages – are estimated via state-of-the-art econometric approaches based a combination of household-levels and macro data. In a first step, the literature survey finds very diverse estimates for price elasticities of alcoholic beverages. We find evidence that excise taxes are typically fully passed onto consumer prices. Using micro data at the household level, we find price elasticities of demand for Spain, France and Poland which are higher (in absolute terms) than those typically found in the literature. This implies that price increases lead to larger drops in sales volume and, thus, tax increases might not result in the expected additional tax revenues. A macro level estimation of the relation between excise tax rates and revenues confirms a Laffer-curve type relationship, i.e., tax revenues cease to increase if excise tax rates reach a certain threshold level. The empirical evidence in this study suggests that the tax rates for beer and wine are well below this revenue maximising saddle point, but the evidence is inconclusive for spirits in the countries in question. Using the simulation tool developed in this study, it is found that a 1 percent increase in the excise tax rates of each alcoholic beverage prevailing in 2017 in each of the countries will have the strongest negative effect on the market volumes of spirits, while for beer and wine these increases translate to by and large higher collected tax revenues. Noteworthily, in some scenarios excise tax increases result in decreases in VAT revenues due to a significant reduction in the higher value on-trade sales.
JEL-Codes:D12, H21, H25, L66
Keywords:alcoholic beverages, excise taxation, VAT, price elasticity
Forschungsbereich:Makroökonomie und öffentliche Finanzen
Sprache:Englisch

Verwandte Einträge

Abgeschlossene Forschungsprojekte
Auftraggeber: Union of Czech Spirits Producers and Distributor
Studie von: Österreichisches Institut für Wirtschaftsforschung
Abgeschlossen: 2019
The project consists of an adoption of a modelling tool for the estimation of tax revenue effects of excise taxes on alcoholic beverages to the context of the Czech Republic.
Abgeschlossene Forschungsprojekte
Studie von: Österreichisches Institut für Wirtschaftsforschung
Auftraggeber: Institut für Höhere Studien
Abgeschlossen: 2018
In Europe a trend towards higher taxation of alcoholic beverages can recently be observed. While it is typically argued that higher taxation of alcohol is necessary to curb excessive consumption and its associated health costs, a tax revenue motive is very often ongoing in the background. Moreover, alcoholic beverage types are taxed very differently and in most cases, spirits drinks are much higher taxed than beer or wine. The underlying idea of a double dividend, i.e., the possibility of raising tax revenues while reducing socially unwanted behaviour, appears to be attractive for many policy makers. However, whether it is possible to raise additional tax revenues from the taxation of alcoholic beverages and/or reducing excessive consumption crucially depends on the functioning of the market for alcoholic beverages. The aim of this study is therefore to shed more light on the functioning of the market for alcoholic beverages and the implied potential to raise tax revenues. The key parameters which determine the impact of taxation on the consumption are the price pass-through of the tax burden and the price elasticity of demand for alcoholic beverages. The price pass-through quantifies the extent to which excise duties and tax increases are passed on to the consumer price, whereas the price elasticity of demand measures the effect of consumer price changes on demand. Additionally, the cross-price elasticity between different types of alcoholic beverages (beer, wine and spirits) as well as non-alcoholic drinks can potentially impact the effects of tax changes on consumption, as some goods are seen as complements while others act as substitute to each other. This study aims at estimating the main parameters for selected EU countries. A special emphasis is put on identifying price elasticities over different drinking behaviours (light, moderate and heavy drinkers) and socio-economic groups (high, medium, low income). Based on the estimated parameters the tax revenue effects for different tax reform scenarios can be simulated for each country.

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