NEW ESTIMATES OF THE OPTIMAL TAX ON ALCOHOL

In this paper I use a new data set to estimate the optimal alcohol tax rate. As a benchmark, the empirical results imply that the optimal tax rate is over 100 percent of the net-of-tax price. However, alcohol taxation is a second-best solution to the problems associated with alcohol abuse. I conclude that the optimal alcohol tax rate would be much lower if punishment for drunk driving were more certain and severe. Government provision of information about the health consequences of heavy drinking would also remove part of the efficiency rationale for alcohol taxes.