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

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.

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Fig. 1

Notes

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

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    https://www.euromonitor.com/.

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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.

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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

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Keywords

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

JEL Classification

  • C23
  • I15
  • I18