Skip to main content

The pass-through of alcohol excise taxes to prices in OECD countries

The European Journal of Health Economics volume 21, pages 855–867 (2020)Cite this article

Abstract

Tax pass-through rates to prices measure how much prices increase when taxes are increased by one unit, which will in turn determine the effectiveness of taxation policies in reducing substance use. Using longitudinal data of alcohol prices and excise taxes from 27 Organization for Economic Cooperation and Development (OECD) countries from 2003 to 2016, we estimate the tax pass-through rates to prices for a variety of alcoholic beverages—beer (1.24; 95% CIs: [0.67, 1.81]), wine (2.4; 95% CIs: [1.7, 3.11]), Cognac (1.71; 95% CIs: [1.07, 2.35]), Gin (0.85; 95% CIs: [0.34, 1.35]), Scotch whisky (1.14; 95% CIs: [0.52, 1.75]), and Liqueur Cointreau (1.98; 95% CIs: [1.21, 2.76]). While excise taxes on wine, Cognac, and Liqueur Cointreau are over-shifted to prices, taxes on Gin are exact- or under-shifted. Excise taxes on beer and Scotch whisky are likely over-shifted to prices, but the tax pass-through rates for these beverages are not significantly different from 1 and we cannot completely rule out exact pass-through of taxes to prices. The tax pass-through to prices for most beverage types is also higher for higher-priced products. Dynamic model further shows a lagged impact of wine and beer taxes on prices, indicating pricing strategies that may target lower-priced beer and wine.

This is a preview of subscription content, access via your institution.

Access options

Buy single article

Instant access to the full article PDF.

43,34 €

Price includes VAT (Finland)
Tax calculation will be finalised during checkout.

Fig. 1

Notes

  1. http://www.oecd.org/tax/tax-policy/tax-database.htm#VATTables.

  2. https://www.euromonitor.com/.

References

  1. Corrao, G., Bagnardi, V., Zambon, A., La Vecchia, C.: A meta-analysis of alcohol consumption and the risk of 15 diseases. Prevent. Med. 38, 613–619 (2004)

    Article  Google Scholar 

  2. Wagenaar, A.C., Salois, M.J., Komro, K.A.: Effects of beverage alcohol price and tax levels on drinking: a meta-analysis of 1003 estimates from 112 studies. Addiction 104, 179–190 (2009)

    Article  Google Scholar 

  3. Wagenaar, A.C., Tobler, A.L., Komro, K.A.: Effects of alcohol tax and price policies on morbidity and mortality: a systematic review. Am. J. Public Health 100, 2270–2278 (2010)

    Article  Google Scholar 

  4. Xu, X., Chaloupka, F.J.: The effects of prices on alcohol use and its consequences. Alcohol Res. Health 34, 236 (2011)

    PubMed  PubMed Central  Google Scholar 

  5. Dutkowsky, D.H., Sullivan, R.S.: Excise taxes, consumer demand, over-shifting, and tax revenue. Public Budget. Finance. 34, 111–125 (2014)

    Article  Google Scholar 

  6. Dutkowsky, D.H., Sullivan, R.S.: Excise taxes, over-shifting, cross-elasticity, and tax revenue. Appl. Econ. Lett. 24, 113–116 (2017)

    Article  Google Scholar 

  7. Tremblay, M.J., Tremblay, V.J.: Tax incidence and demand convexity in Cournot, Bertrand, and Cournot-Bertrand models. Public Finance Rev. 45, 748–770 (2017)

    Article  Google Scholar 

  8. Young, D.J., Bielínska-Kwapisz, A.: Alcohol taxes and beverage prices. Natl. Tax Jl. 55, 57–73 (2002)

    Article  Google Scholar 

  9. Fullerton, D., Metcalf, G.E.: Tax incidence. Handb Public Econ. 4, 1787–1872 (2002)

    Article  Google Scholar 

  10. Hanson, A., Sullivan, R.: The incidence of tobacco taxation: evidence from geographic micro-level data. Natl. Tax J. 62, 677–698 (2009)

    Article  Google Scholar 

  11. Russell, C., van Walbeek, C.: How does a change in the excise tax on beer impact beer retail prices in South Africa? South Afr. J. Econ. 84, 555–573 (2016)

    Article  Google Scholar 

  12. Shrestha, V., Markowitz, S.: The pass-through of beer taxes to prices: evidence from state and federal tax changes. Econ. Inquiry. 54, 1946–1962 (2016)

    Article  Google Scholar 

  13. World Health Organization: WHO technical manual on tobacco tax administration. World Health Organization, Geneva (2010)

    Google Scholar 

  14. Tirole, J.: The theory of industrial organization. MIT Press, Cambridge (1988)

    Google Scholar 

  15. Chaloupka, F.J., Kostova, D., Shang, C.: Cigarette excise tax structure and cigarette prices: Evidence from the Global Adult Tobacco Survey and the US National Adult Tobacco Survey. Nicotine & Tobacco Research, vol 16, pp s3–s9 (2013)

  16. Shang, C., Chaloupka, F.J., Zahra, N., Fong, G.T.: The distribution of cigarette prices under different tax structures: findings from the International Tobacco Control Policy Evaluation (ITC) Project. Tobacco Control. 28, s31–s36 (2019)

    Article  Google Scholar 

  17. Nelson, J.P., Moran, J.R.: Effects of alcohol taxation on prices: a systematic review and meta-analysis of pass-through rates. The BE Journal of Economic Analysis & Policy. 20, 1–21 (2020)

    Google Scholar 

  18. Kenkel, D.S.: Are alcohol tax hikes fully passed through to prices? Evidence from Alaska. Am Econ Rev. 95, 273–277 (2005)

    Article  Google Scholar 

  19. Stehr, M.: The effect of Sunday sales bans and excise taxes on drinking and cross-border shopping for alcoholic beverages. Natl. Tax J. 60, 85–105 (2007)

    Article  Google Scholar 

  20. Siegel, M., Grundman, J., DeJong, W., Naimi, T.S., King III, C., Albers, A.B., Williams, R.S., Jernigan, D.H.: State-specific liquor excise taxes and retail prices in 8 US states, 2012. Subst. Abuse. 34, 415–421 (2013)

    Article  Google Scholar 

  21. Bergman, U.M., Hansen, N.L.: Are excise taxes on beverages fully passed through to prices? The Danish evidence. Finanz Archiv Public Finance Anal. 75, 323–356 (2019)

    Article  Google Scholar 

  22. Bakó, B., Berezvai, Z.: Excise tax overshifting in the Hungarian beer market. (2013). Working paper. http://unipub.lib.uni-corvinus.hu/1263/1/tax_overflow.pdf

  23. Carbonnier, C.: Pass-through of per unit and ad valorem consumption taxes: evidence from alcoholic beverages in France. BE J. Econ. Anal. Policy. 13, 837–863 (2013)

    Article  Google Scholar 

  24. Ally, A.K., Meng, Y., Chakraborty, R., Dobson, P.W., Seaton, J.S., Holmes, J., Angus, C., Guo, Y., HIll-McManus, D., Brennan, A.: Alcohol tax pass-through across the product and price range: do retailers treat cheap alcohol differently? Addiction 109, 1994–2002 (2014)

    Article  Google Scholar 

  25. Ardalan, A., Kessing, S.G.: Tax pass-through in the European beer market. Emp. Econ. (2019). https://doi.org/10.1007/s00181-019-01767-5

    Article  Google Scholar 

  26. Blecher, E., Liber, A., Van Walbeek, C., Rossouw, L.: An international analysis of the price and affordability of beer. PLoS ONE 13, e0208831 (2018)

    Article  Google Scholar 

  27. Blecher, E.H., van Walbeek, C.P.: An international analysis of cigarette affordability. Tobacco Control. 13, 339–346 (2004)

    CAS  Article  Google Scholar 

  28. Shang, C., Wang, X., Chaloupka, F.J.: The association between excise tax structures and the price variability of alcoholic beverages in the United States. PLoS ONE 13, e0208509 (2018)

    CAS  Article  Google Scholar 

  29. Baker, P., Brechling, V.: The impact of excise duty changes on retail prices in the UK. Fiscal Stud. 13, 48–65 (1992)

    Article  Google Scholar 

  30. O’Donoghue, T., Rabin, M.: Optimal sin taxes. J. Public Econ. 90, 1825–1849 (2006)

    Article  Google Scholar 

  31. Sorensen, P.B.: The theory of optimal taxation: what is the policy relevance? Int. Tax Public Finance. 14, 383–406 (2007)

    Article  Google Scholar 

  32. Mankiw, N.G., Weinzierl, M., Yagan, D.: Optimal taxation in theory and practice. J. Econ. Perspect. 23, 147–174 (2009)

    Article  Google Scholar 

  33. Griffith, R., O’Connell, M., Smith, K.: Tax design in the alcohol market. J. Public Econ. 172, 20–35 (2019)

    Article  Google Scholar 

  34. Pesko, M.F., Kruger, J., Hyland, A.: Cigarette price minimization strategies used by adults. Am. J. Public Health 102, e19–e21 (2012)

    Article  Google Scholar 

  35. Pesko, M.F., Licht, A.S., Kruger, J.M.: Cigarette price minimization strategies in the United States: price reductions and responsiveness to excise taxes. Nicotine Tobacco Res. 15, 1858–1866 (2013)

    Article  Google Scholar 

  36. Pesko, M.F., Xu, X., Tynan, M.A., Gerzoff, R.B., Malarcher, A.M., Pechacek, T.F.: Per-pack price reductions available from different cigarette purchasing strategies: United States, 2009–2010. Prevent. Med. 63, 13–19 (2014)

    Article  Google Scholar 

  37. Xu, X., Pesko, M.F., Tynan, M.A., Gerzoff, R.B., Malarcher, A.M., Pechacek, T.F.: Cigarette price-minimization strategies by US smokers. Am. J. Prevent. Med. 44, 472–476 (2013)

    Article  Google Scholar 

  38. Shang, C., Lee, H.M., Chaloupka, F.J., Fong, G.T., Thompson, M., O’Connor, R.J.: Association between tax structure and cigarette consumption: findings from the International Tobacco Control Policy Evaluation (ITC) Project. Tobacco Control. 28, s31–s36 (2019)

    Article  Google Scholar 

  39. Blanchette, J.G., Lira, M.C., Heeren, T.C., Naimi, T.S.: Alcohol policies in US states, 1999–2018. J. Stud. Alcohol Drugs. 81, 58–67 (2020)

    Article  Google Scholar 

  40. Naimi, T.S., Daley, J.I., Xuan, Z., Blanchette, J.G., Chaloupka, F.J., Jernigan, D.H.: Who would pay for state alcohol tax increases in the United States? Prevent. Chronic Dis. 13, E67 (2016)

    Google Scholar 

Download references

Acknowledgements

We would like to thank Xuening Wang for converting the original tax reports to excel data. We would also like to thank the two anonymous reviewers, Jon Nelson, Le Wang, John Buckell and participants at the University of Oklahoma College of Arts and Sciences Research Seminar, the 2019 American Society of Health Economist conference, and the 2019 International Health Economics Association conference for constructive comments. Anh Ngo and Ce Shang are supported by a grant (R00 AA024810-03) from NIH/NIAAA to Dr. Ce Shang.

Author information

Affiliations

  1. Department of Internal Medicine, The Ohio State University Wexner Medical Center, Columbus, Ohio, USA

    Ce Shang

  2. Oklahoma Tobacco Research Center, Stephenson Cancer Center, University of Oklahoma Health Sciences Center, Oklahoma City, USA

    Anh Ngo

  3. Health Policy Center, Institute for Health Research and Policy, University of Illinois at Chicago, Chicago, USA

    Frank J. Chaloupka

Authors
  1. Ce Shang
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Anh Ngo
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Frank J. Chaloupka
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Ce Shang.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Appendix

Appendix

See Table 9.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Shang, C., Ngo, A. & Chaloupka, F.J. The pass-through of alcohol excise taxes to prices in OECD countries. Eur J Health Econ 21, 855–867 (2020). https://doi.org/10.1007/s10198-020-01177-w

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10198-020-01177-w

Keywords

  • Alcoholic beverages
  • Alcohol excise taxes
  • Prices
  • Tax pass-through rates

JEL Classification

  • C23
  • I15
  • I18