Thursday, July 17, 2003

Taxing Drinking

Mark Kleiman says:
Iain Murry (*) objects to alcohol taxation as a means of controlling drinking problems on the grounds that most drinkers don't cause problems. He prefers an approach focused on problem drinkers.

There's no reason to choose. Both approaches are useful; neither, taken alone, is a complete solution.

Alcohol taxation reduces drinking by both problem and non-problem drinkers. By reducing the total amount of drinking, taxation also reduces the proportion of the population that develops alcohol abuse or dependency.
To this I would add: The effect of a tax depends on the price elasticity of demand for the product in question. Which is just a fancy way of saying that some people want booze (or tobacco or whatever) so much that they're going to buy it no matter how much it costs (i.e., their demand for it is inelastic). And it is precisely the "problem drinkers" whose demand for alcohol is going to be more inelastic. Thus, an alcohol tax will have a proportionately greater effect on non-problem drinkers, whose demand for alcohol is more elastic, i.e., responsive to changes in price.

On the other hand, perhaps a stiff alcohol tax would be just the thing to aid in deterring non-drinkers from ever taking up the habit in the first place. This would be useful to the extent that those non-drinkers have a propensity to become alcoholics, although you would have to balance that benefit against the deadweight loss from deterring socially efficient drinking by non-problem drinkers.


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