Admission Price: This event is free to attend
Speaker: Professor Rachel Griffith (University of Manchester and Institute for Fiscal Studies)
Series: Department of Economics Seminar Series 2016-17
We study optimal taxation in the alcohol market. We allow for marginal externalities that vary with total ethanol demand, and therefore across consumers,
and we consider consumer demand over the differentiated products in the market. We show that differentiating tax rates across alcohol products can improve on the Diamond (1973) optimal tax rate applied to ethanol. The product level system exploits correlation in consumers' demands for individual products with their overall ethanol demand. By specifying and estimating an empirical model of consumer behaviour in the market we use our optimal tax results to numerically solve for the optimal system. We find that moving to an optimal system that differentiates rates across different alcohol types (allowing, for instance, for different rates on vodka, gin, ale and so on) would close 49% of the welfare gap between the UK system and the first best.
This seminar is part of the Department of Economics Seminar Series 2016-17. The seminars are open to all - no registration necessary.
Read the Alcohol tax design paper.