Alcohol control in its various guises potentially decreases the burden of disease substantially and thus is an impor- tant instrument for health-care policy. Alcohol policies include measures to reduce the availability of alcohol, alcohol taxation, restricting the sale of alcohol, regulating the drinking context, restrictions on alcohol marketing, drink-driving counter-measures, education and persua- sion, and early intervention and treatment services . Alcohol tax increase is a public policy tool that tradition- ally falls outside the scope of health policy. The reason for this might be that alcoholtaxes usually are controlled by ministries of finance and that tax revenues are not part of the health-care budget. A notable exception in this respect is Thailand where excise taxes on alcohol and tobacco are used to fund major health-care programmes . Still, from a public health perspective alcoholtaxes are an important instrument, as they are known to be able to decrease alcohol consumption [6,8]. Tax increases have been shown to decrease, for instance, cirrhosis mortality and drink-driving deaths .
The evidence from this study indicates that alcoholtaxes are over-shifted to consumers. For example, the Federal excise tax on beer increased by $9 per barrel in 1991. It is estimated to have increased retail prices by $15 to $17. There is no detectable lag in the response of prices to taxes, so that the full effect of a tax change is experienced within three months. However, state beer taxes by themselves appear to be poor proxies for alcohol prices. Other dimensions of tax policy - especially spirits taxes - are highly significant and are more highly correlated with price than beer taxes. In addition, state taxes are only about 3-5 percent of retail prices. Consequently, studies which use beer taxes as the sole measure of price should be regarded with a great deal of caution.
As regards more incremental reforms, welfare gains from increasing expected drunk-driver fines significantly exceed those from imposing the same tax burden on all alcohol consumers, while those from higher expected jail terms are moderately higher. Even though these policies involve significant implementation costs, possible first-order deadweight costs, and fiscal interactions are far less important in relative terms, these drawbacks are offset by their advantage in targeting the road safety externality more directly. 1 This underscores that higher alcoholtaxes should complement, rather than substitute for, stiffer drunk-driver penalties. We also find that although the optimal alcohol tax declines with drunk- driver fines, paradoxically it is not affected by the level of non-pecuniary penalties, and optimized expected drunk-driver penalties are between $0.8 and $1.9 per mile of drunk driving, compared with prevailing penalties of $0.3 per mile.
Note that in states where the liquor tax is low, equalizing to the liquor rate may not provide much additional revenue. It may make more sense to raise the liquor tax first, and then equalize the beer and wine taxes to the new liquor rate. Investing enormous effort in a campaign to raise alcoholtaxes only to see their value erode with future inflation would be only temporarily productive. For example, if taxes remain static for the next 10 years as inflation goes up by 5 percent per year, they would be worth about 40 percent less than they are today. Indexing tax rates for inflation is a simple way to avoid this problem and should be included in any effort to increase alcohol excise taxes. The Consumer Price Index (CPI) for all goods and services is perhaps the best measure to use. In practical terms, the tax would
This paper discusses some of the important parameters that determine the marginal excess burden (MEB) of labor taxes and various sin taxes, using a unifying framework that accounts for externalities and linkages between the different taxes. Using illustrative parameters for the United Kingdom, we showed that the MEB of petrol and cigarette taxes might substantially exceed that of the labor income tax even though these goods are relatively weak substitutes for leisure unless we assume “high” scenarios for externality benefits. In contrast the MEB for alcoholtaxes may be smaller than that of the labor tax, though it is still positive even if the tax is below marginal external costs. The distinction between whether additional revenue is spent on public goods or transfers appears to be less significant for commodity taxes than for labor taxes.
(including drinking among youth who show signs of alcohol use disorders) are considerable. There are also significant effects on youth traffic crashes, violence on college campuses, and crime among people under 21. Although alcoholtaxes are an imperfect index of retail prices, tax rates are relatively easy to measure and provide a useful proxy for economic availability. Based on this and other research, the 2004 National Research Council/IOM Report, Reducing Underage Drinking: A Collective Responsibility, made the following recommendation: “[S]tate legislatures should raise excise taxes to reduce underage consumption and to raise additional revenues for this purpose.”
The biggest difference in the results is between brands of beer. In the specifications using Bud Light prices, consumers pay between 11 percent and 26 percent of the total alcohol tax. In the specifications using Miller Lite prices, consumers pay between 34 percent and 53 percent of the total alcohol tax. We reestimated our regressions using a seemingly unrelated regression (SUR) model to obtain the proper covariance matrix between Bud and Miller prices so that we could test whether the levels of pass- through were statistically different from each other. Using a chi-square test with the SUR results confirms that the Bud and Miller Lite pass- through results are statistically different from each other. Because these are both national brands, it is doubtful that supply elasticities differ enough to make measurable differences in incidence. It seems more likely that demand for Miller Lite is more inelastic than the demand for Bud Light in the region, possibly due to differences in regional preferences or advertising.
Tanner (1995) discussed the relationship between the tax-inclusive and tax- exclusive prices and the own-price elasticity of demand at the point of revenue maximisation (assuming zero cross-price effects). Given the current tax-inclusive and tax-exclusive prices, there is a critical elasticity level that implies that the current tax rate is revenue-maximising. At this point, the revenue effect from a change in demand following a change in the level of duty exactly offsets the revenue effect per unit sold. If the actual elasticity is (absolutely) smaller than this critical level, then the actual tax rate is below its revenue-maximising level and increases in the tax rate will cause revenue to rise. Similarly, if the actual elasticity is (absolutely) larger than this critical level, then the actual tax rate is above its revenue-maximising level and revenue can be increased by cutting taxes. Comparing the critical elasticity levels for beer, wine and spirits with estimates of the own-price elasticities, Crawford and Tanner (1995) concluded that the rates of tax on beer and wine were below their revenue-maximising levels and that further increases in the rates of tax would cause tax revenues to rise. In the case of spirits, however, it could not be rejected that the current rate of tax was revenue-maximising.
The Florida State Division of Alcohol and Tobacco governs alcoholic beverage sales. The Classics Country Club being a private Club, does not permit any alcoholic beverages to be brought on property from any outside source. Alcoholic beverages are priced according to current Club prices. The Florida Liquor Laws do not allow service of alcoholic beverages to a minor. You must be 21 years of age to purchase or consume alcohol.
As the current wine tax is based on price not alcohol content, the implications of applying an LAL tax rate of $11.22 are difficult to calculate, but several broad points can be made. First, if the current tax revenue collected from wine was converted to an LAL equivalent the implied tax rate would be around $13-$14. So, overall the total tax burden on the wine industry would fall. Second, the excise tax on wine retailing for less than around $10-11 per bottle would rise and the excise on wine retailing for more than around $10-11 per bottle would fall. Third, the effective tax on cask wine would increase by almost 300 percent; implying an increase in retail price of around 25 percent. So, although the optimal wine tax is relatively low, shifting to a volumetric tax of $11.22 would have a noticeable impact on the relative price of different wine products.
In this paper we provide an overview of the literature relating labour supply to taxes and welfare benefits with a focus on presenting the empirical consensus. We begin with a basic continuous hours model, where individuals have completely free choice over their hours of work. We then consider fixed costs of work, the complications introduced by the benefits system, dynamic aspects of labour supply and we place the analysis in the context of the family. The key conclusion of this work is that in order to estimate the impact of tax reform and be able to generalise results, a structural approach that takes account of many of these issues is desirable. We then discuss the “new Tax Responsiveness” literature which uses the response of taxable income to the marginal tax rate as a summary statistic of the behavioural response to taxation. Underlying this approach is the unsatisfactory nature of using hours as a proxy for labour effort for those with high levels of autonomy on the job and who already work long hours, such as the self employed or senior executives. After discussing relevant theory we then provide a summary of empirical estimates and the methodology underlying the studies. Our conclusion is that hours of work are relatively inelastic for men, but are a little more responsive for married women and lone mothers. On the other hand, participation is quite sensitive to taxation and benefits for women. Within this paper we present new estimates form a discrete participation model for both married and single men based on the numerous reforms over the past two decades in the UK. We find that the participation of low education men is somewhat more responsive to incentives than previously thought. For men with high levels of education, participation is virtually unresponsive; here the literature on taxable income suggests that there may be significant welfare costs of taxation, although much of this seems to be a result of shifting income and consumption to non-taxable forms as opposed to actual reductions in work effort.
This paper makes three contributions. First, it characterizes optimal policies in the presence of rent-seeking politicians. These are also studied in Acemoglu, Golosov and Tsyvinski (2007a,2007b). The current paper is di¤erent from their work in two impor- tant respects. First, it focuses on the dynamics of government debt, which is an essential element of macroeconomic …scal policies and is ruled out in their model. Second, it in- troduces aggregate shocks which are not present in their work. The optimal …scal policy response to aggregate shocks is studied in the work described in Footnote 2, and we depart from this work by focusing on the role of pure rent-seeking distortions. Second, our pa- per complements the literature on the political economy of debt by highlighting how the incentives of politicians a¤ect optimal policy prescriptions. More speci…cally, Battaglini and Coate (2007) study the dynamics of taxes and debt in a political economy model, but they focus on the Markov Perfect Equilibrium in an environment with incomplete markets in which competing groups stochastically take power. The distinguishing fea- ture of the current paper is the focus on e¢ cient sustainable policies in an environment with complete markets and with electoral accountability. These di¤erences enable us to obtain di¤erent predictions for the short and long run. 7 Finally, this paper establishes
There is a very large literature on the impact of taxes on FDI. Surveys and meta-analyses include de Mooij and Ederveen (2008), and Feld and Heckemeyer (2011). This literature finds a substantial impact of taxation. For example, the meta analysis of Feld and Heckemeyer estimates that the semi-elasticity of FDI with respect to the tax rate is around -2.5. The flow of FDI from country i to country j depends on both extensive and intensive margin decisions. On the extensive margin an investor in i must choose between greenfield investment and acquiring an existing business, and in the latter case between targets in alternative locations. Conditional on those choices, there may also be intensive margin decisions about how much to invest. In this paper we focus on just one aspect of these decisions: conditional on the decision to acquire an existing business, the impact of taxation on the location of the target business, including the home country as well as alternative foreign countries.
It has been suggested that many of the sugary drink taxes in place in the USA are not large enough to have a measurable effect on obesity. However, when Fletcher et al. (2014) studied US jurisdictions where soda taxes are unusually high they still failed to find any effect. They reported that ‘our results cast serious doubt on the assumptions that proponents of large soda taxes make on its likely impacts on population weight. Together with evidence of important substitution patterns in response to soda taxes that offset any caloric reductions in soda consumption, our results suggest that fundamental changes to policy proposals relying on large soda taxes to be a key component in reducing population weight are required.’
In the first part of the chapter we describe the modelling approaches to labour supply, and we discuss the main implications of these theoretical contributions. We explain how these are relevant to modelling and understanding the incentive eﬀects of taxation and welfare benefits and demonstrate that policy analysis requires one to consider the incentives implied by the entire tax and benefit system as an integrated whole. The key issue is how eﬀort reacts to incentives. However, eﬀort can be adjusted on many diﬀerent margins: people can change their hours of work per week or per year, whether they work at all or not 3 and the amount of eﬀort they put into working. Some may also be able to change the way earn income (salary, dividends, capital gains) or how they consume so as to change the tax liability. For many people hours worked is quite a good approximation to eﬀort and the study of the incentive eﬀects of taxation is a study of how hours worked are aﬀected by taxes and transfers. However, for some higher skill individuals in particular, hours worked is not a good measure of eﬀort. They can adjust eﬀort by working harder at ideas and being more creative within a particular time period. In addition, given the way the tax systems are designed, taxation may provide an incentive to over-consume items that are tax-deductible or to shift earnings to tax-favoured forms. Thus the tax incentives of the wealthy have other dimensions than hours of work and these can be an important source of distortions in the tax system. We explain the empirical issues relating to estimating the incentive eﬀects on the various margins of labour/eﬀort supply providing a critical review of the various empirical approaches.
provision decisions. They also introduce a new identification strategy, extending the previous tax-based work to rely on state tax progressivity and changes in state taxes over time, while controlling for mean differences across states that are likely to be correlated with tastes for insurance. They estimate an elasticity of insurance offering of -0.3 to -0.4, towards the lower end of the previous literature. Gruber (2001) recently applied the identification strategy of Gruber and Lettau’s paper to data from the Current Population Survey, which gathers data on a random sample of workers but not on the distribution of workers in a firm. He finds a higher elasticity of offering of -0.7 in these data. But the ECI estimates seem more reliable given the higher quality of the data.
The personal income tax and contributions to finance the general social insurances dominate the tax system, each accounting for about one-quarter of total tax revenues. Less than 10 percent of income tax due is collected by assessment, the remainder being collected by withholding the tax at source, the latter method being applied to wages, private pensions, social insurance and welfare benefits (wage tax), and dividends (dividend tax). Resident tax-payers are taxed on their world-wide income, that has been earned within a given calendar year. As a rule, private capital gains are not taxed. Income is taxed under a three-bracket rate schedule at 13%, 50% and 60%, respectively. In 1991, contributions to finance general social insurances produced nearly Gld 63bn. All residents are covered by four general social insurance programmes, the most important one being the general old-age pension scheme. Contributions to finance the general social insurances have a flat rate (25%), with a cap, since these taxes are due on income in the first income tax bracket only, while the personal exemptions apply. Thus, the combined rate of the personal income tax and general social insurance contributions comes to (13+25=) 38%, 50% and 60% respectively.
The theoretical analysis points to empirical skill distributions as a crucial input for a quantitative analysis. We construct a dataset of individual skills and their evolution over lifetime implied by the observed micro level data for the U.S. The main di¢ culty in estimating skills from the data is that skills are unobservable. One can use wages as a proxy for skills but it does not necessarily correspond to skills which measure the return to e¤ort. We use the data on the actual U.S. tax code and labor income choices to infer the unobservable skill level. Since the details of the actual U.S. system of taxes and transfers are observable, we compute the implied individual skills from the necessary conditions for the individual optimum. The methodology is a dynamic extension of that of Saez ( 2001 ) who used a similar approach to infer cross-sectional distribution of skills in the population.
tax competition case, t=0.67, but it is actually higher than in the inelastic case because a higher tax allows for a decrease in the external costs of trucking.
The third row introduces distance charges as an additional instrument. The findings in Prop 4 are clearly visible, the fuel tax in both countries is zero, and the distance charge is set far above the external cost. It is worth noting that the distance charge is the same in the weak and strong tax competition case. This is not surprising as the tax competition only operates through fuel taxes, which are driven to the bottom for this very reason, i.e., the tax competition plays no intense role on the distance charge in the Nash equilibrium. The lower part of table 2 illustrates the mechanism when country B’s response is restricted. In the first of these rows, country B is not able to use a distance charge and is also restricted to applying a fuel tax equal to the external cost (equal to 3). Then, in the weak competition case we see that country A will apply a high distance charge and zero fuel tax. In the strong competition case we end up in a corner solution where A sets a fuel tax equal to 2 which will capture the entire international fuel market; A sets the distance charge such that the sum of the fuel tax and distance charge is close to what we find in the weak competition case.