## htnea2023004

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---

### Introduction: purpose, motivation, and health burden
- Key purpose and scope:
  - Examines interplay between excise taxes on alcohol and alcoholic beverages, revenue yield, and public health concerns.
  - Provides guidance on designing excise taxes on alcohol based on theoretical principles and empirical international experience.
  - Addresses importance and forms of alcohol consumption across income levels; trends in alcohol excise tax revenue; how to design simple excise regimes that yield revenue and can contribute to reducing externalities and internalities from alcohol consumption.
  - Focuses on revenue and direct behavioral impact of taxes; does not directly address non-tax interventions such as smuggling and bootlegging, surrogate alcohol consumption, or access to alcoholic products.
- Framing and motivation:
  - Evidence increasingly suggests there is no safe level of alcohol consumption (Anderson and others 2023).
  - Harms depend on volume, concentration, and speed of consumption and can lead to crime and violence, harm to children, vehicular accidents, unemployment, reduced productivity, and death.
  - 2016 global burden: alcohol responsible for 5.3 percent of deaths and 5.1 percent of disability-adjusted life years worldwide (Poznyak and Rekve 2018).
- Composition of alcohol-related health burden (2016, global):
  - Injuries: 28.7 percent of alcohol-related deaths.
  - Digestive diseases: 21.3 percent.
  - Cardiovascular diseases: 19.0 percent.
  - Infectious diseases: 12.9 percent.
  - Cancers: 12.6 percent.
  - Disability-adjusted life years attributable to alcohol:
    - 49 percent due to noncommunicable diseases and mental health conditions.
    - 40 percent due to injuries.
- Comparative policy note:
  - Tobacco policies (restrictions and tax increases) have intensified over past decades; alcohol policies have not followed the same path in many countries.
  - Alcohol excises averaged 0.36 percent of GDP over 1990 to 2017, suggesting potential for additional, resilient tax revenue alongside health benefits.

### Consumption and tax revenue trends
- Consumption patterns by income level and product:
  - Per capita consumption generally follows stable trends within an income category over the past 20 years.
  - Beer:
    - Increasing over time in middle-income countries.
    - Remained rather stable in high-income countries and low-income countries.
  - Wine:
    - Markedly higher in high-income countries.
    - Remarkably constant for all income categories.
  - Spirits (since 2000):
    - Stable in high-income countries, lower-middle-income countries, and low-income countries.
    - Declined steadily in upper-middle-income countries.
  - Other alcoholic beverages:
    - Overwhelmingly consumed in low-income countries.
    - Steadily declined since 1992 in low-income countries; slightly increased in high-income countries.
- Regional patterns and affordability:
  - Highest recorded alcohol consumption per capita: North America, Europe and Central Asia, Latin America and the Caribbean—annual consumption exceeding two liters of pure alcohol per capita for beer and spirits.
  - Wine consumption typical in Europe, Central Asia, and North America.
  - Low consumption in Middle East and North Africa largely explained by religious factors.
  - Spirits dominate in South Asia; other alcoholic beverages dominate in sub-Saharan Africa.
  - Affordability:
    - Outside sub-Saharan Africa, South Asia, and East Asia and the Pacific, all three types of alcohol are available at less than 7 percent of daily income.
    - In North America, Europe, and Central Asia, these drinks remain affordable at less than 5 percent of daily income.
    - In some regions (sub-Saharan Africa, Middle East and North Africa, East Asia and the Pacific), the most concentrated alcohols are more affordable.
- Unrecorded alcohol:
  - Unrecorded alcohol is a significant share of consumption in some countries and rising over time.
  - Illegal craft spirits and surrogate alcohol are the most prevalent forms of unrecorded alcohol worldwide (Rehm and others 2014).
  - Of 156 countries with information on tax status of ethanol, 56 do not apply any tax on the ethanol used in manufacture of these beverages (WHO, n.d.).
- Trends in alcohol excise tax revenue:
  - Alcohol excise tax revenues as a percentage of GDP have been on a downward trend.
  - Levels are well below those of tobacco-related excise tax revenue.
  - Alcohol-related excise tax revenues are relatively low in most countries:
    - Lower-middle-income countries collect more alcohol tax revenue on average (as a share of GDP).
    - Low-income countries mobilize the least amount of alcohol excise tax revenue—below the world average (0.36 percent of GDP) and below lower-middle-income countries (0.43 percent of GDP).
  - Implication: asymmetries in consumption profiles and tax revenue mobilization across income levels suggest potential for additional tax revenue, notably for high- and upper-middle-income countries.

### Excises and alcohol consumption: theory and empirical evidence
- Tax instruments and objectives:
  - Alcohol should generally be subject to VAT and customs duties; excise taxes are used to raise prices on specific goods.
  - Excise types: specific excise; ad valorem excise; combination of specific and ad valorem.
  - Excise level usually related to damage caused by consumption/production to third parties (externalities) or to self (internalities).
  - Optimal excise concept: set at marginal cost of the externality or internality or sum of both.
- Nature and measurement of externalities/internalities:
  - Include traffic accidents, self-injuries, physical violence, property damage, and additional health care costs in publicly funded systems.
  - Measurement complications: harms not directly proportional to amount consumed; patterns (binge vs. moderate), concentration, speed, and social environment matter.
  - Given measurement difficulties, externalities/internalities are often proxied by the total health and economic burden.
- Empirical estimates of burden:
  - Global literature survey places externalities/internalities in the range of 2.0 to 3.1 percent of GDP (Manthey and others 2021).
  - Country-level estimates:
    - Manning and others (1989): net external costs for the United States about 35 percent of the cost of producing these products.
    - Bouchery and others (2011): economic cost in the US in 2006 about $746 per person.
    - Smith (2005): total cost in the United Kingdom about 17 percent of pretax spending on alcohol.
    - Matzopoulos and others (2014): tangible financial costs in South Africa about 1.6 percent of GDP in 2009.
    - Thavorncharoensap and others (2010): total economic cost in Thailand about 1.99 percent of GDP in 2006.
- Additional efficiency and revenue rationales:
  - Complementarity of drinking with leisure can justify excises on revenue-raising grounds.
  - Complementarity between drinking and smoking provides additional efficiency and revenue rationale for taxing alcohol.
- Price elasticity and heterogeneity of demand:
  - Average demand for alcohol is inelastic, but price elasticity varies by consumption pattern and group.
  - Heavy drinkers and binge drinkers face lower price elasticities.
  - Fogarty (2004): beer is more price inelastic than wine and spirits.
  - Araya and Paraje (2018) (Chile): elasticities of -0.93 for beer, -0.77 for wine, and -0.14 for spirits.
  - Jiang et al. (2016): price elasticity varies with income level; low-income individuals and harmful drinkers are more sensitive to price changes.
- Cross-product interactions and substitution:
  - Tobacco and alcohol are complementary; cross-price effects can be asymmetric.
  - Substitution across alcohol types and toward untaxed or less-taxed products is a key concern.
- Pass-through to consumer prices:
  - Evidence on pass-through:
    - Overshifting found by Shrestha and Markowitz (2016), Kenkel (2005), Young and Bielińska-Kwapisz (2002), Carbonnier (2013), Bergman and Hansen (2010).
    - Nelson and Moran (2020) meta-analysis concluded excise duties are perfectly shifted on prices, but not overshifted.
    - Passthrough rates depend on product types, increase with prices, and are immediate.
  - Alcohol taxes reduce affordability and therefore reduce consumption, harm, and poverty (Rabinovich and others 2009; Stoklosa and others 2016; WHO 2023; Postolovska and others 2017).
- Tax design choices, administrative implications, and inflation indexing:
  - Specific taxes:
    - Easier administration; can target alcohol content; disadvantage: higher burden on cheaper products; insensitive to inflation without indexation.
  - Ad valorem taxes:
    - Adjust automatically to inflation; may encourage production of cheaper products; valuation difficulties for administrations.
  - Trade-offs:
    - From a health perspective, specific excise taxes seem preferred because they lead to a higher price effect and are easier to administer.
    - Combining specific and ad valorem elements can address multiple objectives but increases complexity.
- Equity, regressivity, and welfare trade-offs:
  - Excise taxes often considered regressive, but when health benefits are included, they are not clearly regressive and can be progressive.
  - Postolovska and others (2017) (cigarettes in Armenia): a 45 percent increase in the retail price could produce:
    - Prevent 88 percent of early deaths.
    - Prevent 22,000 cases of impoverishment.
    - Prevent 33,000 cases of substantial health expenditures.
    - Half of early deaths and 27 percent of poverty cases occur among the poorest 40 percent.
- Complementary policies and limitations:
  - Tax policy cannot on its own modify heavy drinkers’ behavior.
  - Complementary measures include minimum unit pricing, adjusting legal drinking age, limiting sales days/hours, and liquor sales monopolies.
  - Concerns about illicit/unrecorded alcohol and cross-border trade require stricter controls on production, imports, and supply chains.

### Empirical examples, structures, and numerical illustrations
- Country examples and design choices:
  - Burkina Faso and Côte d’Ivoire: similar consumption around 8 liters of pure alcohol per capita per year; unrecorded and fortified beverages account for around 7 of the 8 liters.
  - Côte d’Ivoire: ad valorem rates: 17 percent for beer, 45 percent for spirits, and 35 percent or 40 percent for wine.
  - Burkina Faso: applied 30 percent ad valorem on beer, wine, and spirits until 2016; as of January 2023 adopted new rates (wines 70 percent; beers 30 or 40 percent; other alcoholic beverages 50 or 70 percent depending on alcohol content).
  - Senegal: 40 percent ad valorem for all alcoholic products plus specific excises:
    - 800 CFA francs per liter ($1.2) for wines and beers with 6 percent to 18 percent alcohol.
    - 3000 CFA francs per liter ($4.5) for spirits or alcohol products with 18 percent or more alcohol.
  - Thailand:
    - Since 2017 uses a “one-plus-one” system with ad valorem part varying between 0 and 22 percent and specific part from 0 Thai baht to 1,500 Thai baht per liter of pure alcohol (equivalent to $46.14 per liter of pure alcohol).
- Appendix 1: selected excise structures (exact figures preserved for multiple countries, examples include Algeria, Angola, Argentina, Azerbaijan, Burkina Faso, Finland, France, Italy, Senegal, Spain, Thailand).
- Appendix 2: illustration of excise + VAT application (exact figures preserved for Algeria, Finland, France examples):
  - Pretax price in LCU P0 (Beer / Wine / Spirit):
    - Algeria: 75 / 350 / 7,500
    - Finland: 3.5 / 12.5 / 30
    - France: 3.5 / 12.5 / 30
  - Volume in liters V: 0.33 / 0.75 / 0.5
  - Alcohol content in percentage A: 5% / 13% / 40%
  - Excise tax rate in LCU per liter of absolute alcohol T:
    - Algeria: 770 / 770 / 1,100
    - Finland: 0.3805 / 4.21 / 50.35
    - France: 0.0782 / 0.0985 / 10.00
  - Excise tax revenue in LCU E = V x A x t:
    - Algeria: 12.71 / 75.08 / 220.00
    - Finland: 0.01 / 3.16 / 10.07
    - France: 0.00 / 0.07 / 2.00
  - Post-excise price in LCU P1 = P0 + E:
    - Algeria: 87.71 / 425.08 / 7,720.00
    - Finland: 3.51 / 15.66 / 40.07
    - France: 3.50 / 12.57 / 32.00
  - VAT rate R:
    - Algeria: 17% across beer, wine, spirit
    - Finland: 24% across beer, wine, spirit
    - France: 20% across beer, wine, spirit
  - Total tax revenue T = E + VAT and post-tax price P2 provided with exact country-product figures in the appendix.
  - Tax in percentage of retail (post-tax) price T/P2 examples:
    - Algeria: 26.9% / 29.6% / 17.0%
    - Finland: 19.5% / 35.6% / 39.6%
    - France: 16.7% / 17.2% / 21.9%

### Conclusion: optimal rates, evidence on current levels, and elasticities
- Key findings on optimal tax levels and estimates:
  - Kenkel (1996) argued that the optimal rate should be above 100 percent of the net-of-tax price.
  - Parry and Miron (2009) report the appropriate rate in the literature varies between 0 and 40 percent of the pretax price.
  - Shafer (2014) estimates optimal excise tax rates range from $77.7 to $276.28 per gallon of pure alcohol across states, with an average value of $185.95 ($49.12 per liter of pure alcohol).
  - Griffith, O’Connell, and Smith (2017) (UK analysis):
    - Optimal single rate: 3590p ($55.81) per liter of ethanol.
    - By segment and type: range 2540p ($39.49) to 4260p ($66.23) per liter of ethanol for cider and spirits, respectively; Beer: 2830p ($44) per liter of ethanol; Wine: 3040p ($47.26) per liter of ethanol.
  - Cnossen (2007) for the European Union: between one-third and one-half of alcohol consumption comes from a small proportion of consumers responsible for most external costs.
  - Many countries’ existing tax rates are low and well below the levels suggested by these optimal estimates.
- Price elasticity and heterogeneity (summary):
  - Demand generally inelastic but heterogeneous; heavy drinkers less price responsive; evidence of varying elasticities across beverages and income groups.
- Pass-through and behavioral impact:
  - Evidence supports that excise increases affect retail prices and reduce affordability, consumption, harm, and poverty when pass-through occurs.

### Policy guidance and recommended design principles (Box 5 and overarching conclusions)
- Overarching conclusions:
  - Taxation should be part of a wider range of policies on alcohol, including health education, targeted interventions for specific population subgroups, and exemptions where appropriate.
  - Large informal production of surrogate products may require greater controls; protecting the tax base of the formal sector is probably a better long-term solution than lowering rates on the formal sector.
  - The optimal level of taxation is country specific and cannot be driven by simple rules; current levels of excises are generally too low and need to increase.
  - Countries can estimate external economic costs associated with alcohol use to establish a reliable base for determining optimal excise levels.
- Recommended design principles:
  - Consider a simple, comprehensive, and consistent approach across alcoholic products: a beverage-specific rate per liter of alcoholic content, increasing by concentration brackets (e.g., beer, wine, spirits), and indexed to inflation.
  - In middle- and high-income countries, an excise combining both alcohol content and beverage value could be appropriate.
  - Prefer specific excise taxes for health objectives and administrative simplicity, with regular indexation to prevent real revenue erosion.
  - Where feasible, combine specific and ad valorem elements to balance revenue and health objectives, recognizing administrative complexity.
  - Anticipate substitution effects and deploy tax differentials and complementary measures (minimum unit pricing, market controls, supply-chain enforcement) to limit shifts toward untaxed, cheaper, or unrecorded products.
  - Pair tax increases with stricter controls on production, imports, and distribution to limit cross-border arbitrage and illicit alcohol consumption.
  - Ensure effective administration and collection: clear legal framework, licensing, reporting and filing requirements, strong enforcement, coordination between customs and tax departments.
- Box 4 (wine producers): notes that some main wine producers (Italy, Spain) tax wine at zero or low rates; complexities arise in converting volume-based rates to strength-based comparators.
- Box 5 (Finland case): Finland increased excise rates multiple times with net decreases in consumption over 2007–2020 of 23 percent, but outcomes depended on concurrent regulatory measures and changes in sales rights.

*IMF | How to Design Excise Taxes on Alcoholic Beverages — Introduction and conclusion (How to Note 2023/004, content unit htnea2023004).*

### Introduction ...........................................................................................................

### Introduction

### Key purpose and scope
- Examines the interplay between excise taxes on alcohol and alcoholic beverages, revenue yield, and public health concerns.
- Provides guidance on designing excise taxes on alcohol based on theoretical principles and empirical international experience.
- Addresses: importance and forms of alcohol consumption across income levels; trends in alcohol excise tax revenue; how to design simple excise regimes that yield revenue and can contribute to reducing externalities and internalities from alcohol consumption.
- Note focus: revenue and direct behavioral impact of taxes. Does not directly address non-tax interventions such as smuggling and bootlegging, surrogate alcohol consumption, or access to alcoholic products.

### Framing and motivation
- Alcohol consumption linked to economic and societal factors and cultural practices.
- Evidence increasingly suggests there is no safe level of alcohol consumption (Anderson and others 2023).
- Harms depend on volume, concentration, and speed of consumption and can lead to crime and violence, harm to children, vehicular accidents, unemployment, reduced productivity, and death.
- 2016 global burden: alcohol responsible for 5.3 percent of deaths and 5.1 percent of disability-adjusted life years worldwide (Poznyak and Rekve 2018).

### Composition of alcohol-related health burden (2016, global)
- Injuries: 28.7 percent of alcohol-related deaths.
- Digestive diseases: 21.3 percent.
- Cardiovascular diseases: 19.0 percent.
- Infectious diseases: 12.9 percent.
- Cancers: 12.6 percent.
- Disability-adjusted life years attributable to alcohol:
  - 49 percent due to noncommunicable diseases and mental health conditions.
  - 40 percent due to injuries.

### Comparative policy note
- Tobacco policies (restrictions and tax increases) have intensified over past decades; alcohol policies have not followed the same path in many countries.
- Between 1995 and 2014, excise taxes on tobacco products increased much more than those on alcohol in six European countries (Figure 1 referenced).
- Alcohol excises averaged 0.36 percent of GDP over 1990 to 2017, suggesting potential for additional, resilient tax revenue alongside health benefits.

---

### Consumption and Tax Revenue Trends

### Consumption patterns by income level and product
- Per capita consumption generally follows stable trends within an income category over the past 20 years.
- Beer consumption:
  - Increasing over time in middle-income countries.
  - Remained rather stable in high-income countries and low-income countries.
- Wine consumption:
  - Markedly higher in high-income countries.
  - Remarkably constant for all income categories.
- Spirits consumption (since 2000):
  - Stable in high-income countries, lower-middle-income countries, and low-income countries.
  - Declined steadily in upper-middle-income countries, edging toward its 1980s-era level (increase from 1990 to 1995 linked to Eastern Europe).
- Other alcoholic beverages (fermented beverages from sorghum, maize, millet, rice, cider, fruit wine, fortified wine):
  - Overwhelmingly consumed in low-income countries.
  - Steadily declined since 1992 in low-income countries.
  - Slightly increased in high-income countries.

### Regional patterns and affordability
- Highest recorded alcohol consumption per capita: North America, Europe and Central Asia, Latin America and the Caribbean—annual consumption exceeding two liters of pure alcohol per capita for beer and spirits (Figure 3, panel 1 referenced).
- Wine consumption more typical in Europe, Central Asia, and North America.
- Low consumption in Middle East and North Africa largely explained by religious factors.
- Spirits dominate in South Asia; other alcoholic beverages dominate in sub-Saharan Africa.
- Affordability (measured by GDP per capita per day and other measures):
  - Outside sub-Saharan Africa, South Asia, and East Asia and the Pacific, all three types of alcohol are available at less than 7 percent of daily income.
  - In North America, Europe, and Central Asia, these drinks remain affordable at less than 5 percent of daily income.
  - In some regions (sub-Saharan Africa, Middle East and North Africa, East Asia and the Pacific), the most concentrated alcohols are more affordable.

### Unrecorded alcohol
- Unrecorded alcohol is a significant share of consumption in some countries and rising over time.
- Illegal craft spirits and surrogate alcohol are the most prevalent forms of unrecorded alcohol worldwide (Rehm and others 2014).
- Many countries do not tax or monitor inputs used in these products (notably ethyl alcohol).
  - Of 156 countries with information on tax status of ethanol, 56 do not apply any tax on the ethanol used in manufacture of these beverages (WHO, n.d.).

### Trends in alcohol excise tax revenue
- Alcohol excise tax revenues as a percentage of GDP have been on a downward trend.
- Levels are well below those of tobacco-related excise tax revenue, which have been increasing over time, notably in the European Union (Figure 4, panel 1 referenced).
- Alcohol-related excise tax revenues are relatively low in most countries (Figure 4, panel 2 referenced):
  - Lower-middle-income countries collect more alcohol tax revenue on average (as a share of GDP).
  - Low-income countries mobilize the least amount of alcohol excise tax revenue—below the world average (0.36 percent of GDP) and below lower-middle-income countries (0.43 percent of GDP).
  - Distribution within lower-middle-income countries shows many collect less than the group average, possibly due in some cases to cultural factors.
- Implication: asymmetries in consumption profiles and tax revenue mobilization across income levels suggest potential for additional tax revenue, notably for high- and upper-middle-income countries.

---

### Excises and Alcohol Consumption: Theory and Practice

### Tax instruments and objectives
- Alcohol should generally be subject to value-added tax (VAT) and customs duties; excise taxes are used to raise prices on specific goods.
- Excise types:
  - Specific excise: amount per quantity.
  - Ad valorem excise: percentage of price.
  - Combination of specific and ad valorem.
- Excise level usually related to damage caused by consumption/production to third parties (externalities) or to self (internalities).
  - Internalities: align life-cycle considerations with short-term preferences (notably addiction).
- Optimal excise concept: set at marginal cost of the externality or internality or sum of both (Pigou 1920; Gruber and Kőszegi 2004; O’Donoghue and Rabin 2006; Griffith and others 2017).

### Nature and measurement of externalities/internalities
- Externalities/internalities include traffic accidents, self-injuries, physical violence, property damage, and additional health care costs in publicly funded systems.
- Measurement complications:
  - They differ from total burden of disease and are not directly proportional to amount consumed.
  - Low, irregular, slow consumption of nonconcentrated alcohol yields little externality/internality; frequent binge drinking of highly concentrated alcohol causes large harms.
  - Quantity, consumption patterns, product concentration, speed of drinking, and social environment significantly affect externalities/internalities.
- Given measurement difficulties, externalities/internalities are often proxied by the total health and economic burden, which tend to be important.

### Empirical estimates of burden
- Global literature survey places externalities/internalities in the range of 2.0 to 3.1 percent of GDP (Manthey and others 2021).
- Country-level estimates:
  - Manning and others (1989): net external costs of alcohol consumption for the United States about 35 percent of the cost of producing these products, with traffic accidents a substantial share.
  - Bouchery and others (2011): economic cost associated with alcohol consumption in the US in 2006 about $746 per person.
  - Smith (2005) (based on Maynard and others 1994): total cost of alcohol consumption in the United Kingdom about 17 percent of pretax spending on alcohol.
  - Matzopoulos and others (2014): tangible financial costs of alcohol misuse in South Africa about 1.6 percent of GDP in 2009.
  - Thavorncharoensap and others (2010): total economic cost of alcohol consumption in Thailand about 1.99 percent of GDP in 2006.

### Additional efficiency and revenue rationales
- Complementarity of drinking with leisure can justify excises on revenue-raising grounds (Crawford, Keen, and Smith 2010).
- Complementarity between drinking and smoking provides additional efficiency and revenue rationale for taxing alcohol (Dee 1999; Decker and Schwartz 2000; Room 2004; Pierani and Tiezzi 2009; Aristei and Pieroni 2010).
  - Ethanol and nicotine have partially counteracting pharmacological effects, and consumers use both to assess effects.
  - Psychological traits (impulsivity, sensation-seeking) lead to simultaneous heavy drinking and smoking.

### Practical considerations
- Determining optimal excise duty rate on alcoholic beverages is difficult; no consensus in economic literature.
- Literature converges on the importance of tailoring excise design to account for externalities/internalities, consumption patterns, and complementary behaviors.

---

*IMF | How to Design Excise Taxes on Alcoholic Beverages — Introduction (How to Note 2023/004)*

### conclusion: Existing tax rates are low and well below optimal rates. For the United States, Kenkel (1996)

### htnea2023004 - conclusion: Existing tax rates are low and well below optimal rates. For the United States, Kenkel (1996)

### Key findings on optimal tax levels and estimates
- Kenkel (1996) argued that the optimal rate should be above 100 percent of the net-of-tax price.
- Parry and Miron (2009) report that the appropriate rate in the literature varies between 0 and 40 percent of the pretax price.
- Shafer (2014) estimates that optimal excise tax rates range from $77.7 to $276.28 per gallon of pure alcohol across states, with an average value of $185.95 ($49.12 per liter of pure alcohol).
- Griffith, O’Connell, and Smith (2017) (UK analysis):
  - Optimal single rate: 3590p ($55.81) per liter of ethanol.
  - Under a tax by segment and by type:
    - Range: 2540p ($39.49) to 4260p ($66.23) per liter of ethanol for cider and spirits, respectively.
    - Beer: 2830p ($44) per liter of ethanol.
    - Wine: 3040p ($47.26) per liter of ethanol.
- Cnossen (2007) for the European Union: between one-third and one-half of alcohol consumption comes from a small proportion of consumers responsible for most external costs.
- Many countries’ existing tax rates are low and well below the levels suggested by these optimal estimates.

### Price elasticity and heterogeneity of demand
- Average demand for alcohol is inelastic, but price elasticity varies by consumption pattern and group (Markowitz and Ding 2020).
- Heavy drinkers and binge drinkers face lower price elasticities (Nelson 2014, 2015).
- Fogarty (2004) meta-analysis: beer is more price inelastic than wine and spirits, which have similar elasticities.
- Araya and Paraje (2018) (Chile): elasticities of -0.93 for beer, -0.77 for wine, and -0.14 for spirits.
- Jiang et al. (2016): price elasticity varies with income level; low-income individuals and harmful drinkers are more sensitive to price changes.
- Implication: excise taxes can be an effective tool to reduce poverty and produce redistributive effects.

### Cross-product interactions and substitution effects
- Pierani and Tiezzi (2009): tobacco and alcohol are complementary; cross-price elasticity of tobacco with respect to alcohol is higher than alcohol with respect to tobacco.
- Decker and Schwartz (2000): higher alcohol prices reduce alcohol consumption and tobacco participation; higher tobacco prices reduce smoking participation but raise alcohol consumption.
- Substitution across alcohol types and toward untaxed or less-taxed products is a key concern (Fogarty 2004); mixers and other low-cost products may evade taxation.

### Pass-through to consumer prices and consumption effects
- To affect consumption, excises must increase consumer prices (producers/retailers must not absorb them).
- Evidence on pass-through:
  - Overshifting found by Shrestha and Markowitz (2016), Kenkel (2005), Young and Bielińska-Kwapisz (2002), Carbonnier (2013 for France), and Bergman and Hansen (2010 for Denmark).
  - Nelson and Moran (2020) meta-analysis (30 papers, 16 on the United States) concluded excise duties are perfectly shifted on prices, but not overshifted.
  - Passthrough rates depend on product types, increase with prices (Ally and others 2014 for the UK; Shang, Ngo, and Chaloupka 2020 for OECD countries), and are immediate (Hindriks and Serse 2019 on Belgium).
- Alcohol taxes reduce affordability and therefore reduce consumption, harm, and poverty (Rabinovich and others 2009 for the EU; Stoklosa and others 2016 for Poland; WHO 2023; Postolovska and others 2017).

### Tax design choices, administrative implications, and inflation indexing
- Specific taxes:
  - Easier administration because tax amount does not require price or cost assessment.
  - Can directly or indirectly target alcohol content.
  - Disadvantages: higher burden on cheaper products, requires clear tax base definition, insensitive to inflation (leading to erosion of real revenues without indexation).
  - Regular adjustments to prices are required to keep up with inflation; many countries suffer excise revenue losses due to non-indexation.
- Ad valorem taxes:
  - Adjust automatically to inflation (provided inflation affects the price at which the excise is levied).
  - Have a multiplier effect on price, which may encourage production of cheaper, often more dangerous products and discourage quality improvements.
  - Can create valuation difficulties for tax administrations.
- Trade-offs:
  - From a health perspective, specific excise taxes seem preferred because they lead to a higher price effect and are easier to administer.
  - Combining specific and ad valorem elements can address multiple objectives but increases complexity.

### Equity, regressivity, and welfare trade-offs
- Excise and consumption taxes are often considered regressive, but when health benefits are included, taxes on alcohol, tobacco, or sugar-sweetened beverages are not clearly regressive and can be progressive (Gruber and Kőszegi 2004; Long and others 2015; Fuchs and Meneses 2017; Falbe 2020).
- Postolovska and others (2017) (cigarettes in Armenia): a 45 percent increase in the retail price could produce:
  - Prevent 88 percent of early deaths.
  - Prevent 22,000 cases of impoverishment.
  - Prevent 33,000 cases of substantial health expenditures.
  - Half of early deaths and 27 percent of poverty cases occur among the poorest 40 percent.
- Welfare trade-off: welfare gains from reducing social costs of excessive consumption do not necessarily balance welfare losses from reduced moderate consumption.

### Complementary policies and limitations of tax policy alone
- Tax policy cannot on its own modify heavy drinkers’ behavior (Markowitz and Ding 2020).
- Complementary measures include minimum unit pricing (targets cheapest beverages favored by heavy drinkers), adjusting legal drinking age, limiting sales days/hours, and liquor sales monopolies (Holmes and others 2014; Sharma, Etilé, and Sinha 2016; Calcott 2019; Carpenter, Dobkin, and Warman 2016; Fletcher 2019; Markowitz and Ding 2020).
- Concerns about illicit/unrecorded alcohol and cross-border trade require stricter controls on production, imports, and supply chains when raising excises.
- The effect of taxes on youth consumption is contested and peer effects remain important (Leung, Toumbourou, and Hemphill 2014; Brooks-Russell and others 2014; Ali and Dwyer 2010).

### International experience and country examples
- Burkina Faso and Côte d’Ivoire:
  - Both had similar consumption around 8 liters of pure alcohol per capita per year.
  - Unrecorded and fortified beverages account for around 7 of the 8 liters.
  - Côte d’Ivoire differentiated ad valorem rates: 17 percent for beer, 45 percent for spirits, and 35 percent or 40 percent for wine.
  - Burkina Faso applied 30 percent ad valorem on beer, wine, and spirits until 2016 and later increased rates; as of January 2023 Burkina Faso adopted new rates (wines 70 percent; beers 30 or 40 percent; other alcoholic beverages 50 or 70 percent depending on alcohol content).
  - Consumption outcomes: per capita consumption of spirits was approximately two times higher in Burkina Faso; beer consumption was 17 percent higher in Côte d’Ivoire.
- Senegal:
  - Chose a 40 percent ad valorem rate for all alcoholic products and added specific excises for wine and spirits.
  - Specific excise: 800 CFA francs per liter ($1.2) for wines and beers with 6 percent to 18 percent alcohol.
  - Specific excise: 3000 CFA francs per liter ($4.5) for spirits or alcohol products with 18 percent or more alcohol.
  - Legislation applies the same specific rate per bottle even when bottles are smaller than a liter, encouraging sale of larger bottles.
- Thailand:
  - Combined ad valorem and specific taxes; system evolved over time due to complexity.
  - Since 2017 uses a “one-plus-one” system with ad valorem part varying between 0 and 22 percent and specific part from 0 Thai baht to 1,500 Thai baht per liter of pure alcohol (equivalent to $46.14 per liter of pure alcohol), depending on product category.
  - Design intends to prevent initiation of alcohol abuse (via ad valorem) and target high-alcohol-content drinks (via specific).

### Policy implications and recommended design principles (implied by evidence)
- Consider higher taxation on spirits relative to beer, with wine intermediate, to reflect harms correlated with alcohol concentration and speed of ingestion.
- Prefer specific excise taxes for health objectives and administrative simplicity, with regular indexation to prevent real revenue erosion.
- Where feasible, combine specific and ad valorem elements to balance revenue and health objectives, recognizing increased complexity and administrative capacity requirements.
- Anticipate substitution effects and design tax differentials and complementary measures (minimum unit pricing, market controls, supply-chain enforcement) to limit shifts toward untaxed, cheaper, or unrecorded products.
- Pair tax increases with stricter controls on production, imports, and distribution to limit cross-border arbitrage and illicit alcohol consumption.
- Use targeted complementary policies to address heavy drinkers (e.g., minimum unit pricing) and legal/regulatory measures to influence availability and initiation.

*Source: htnea2023004 - conclusion (IMF).*

### Box 5) are also important considerations.

### htnea2023004 - Box 5) are also important considerations.

### Policy Guidance: overarching conclusions
- Taxation should be part of a wider range of policies on alcohol, including health education, targeted interventions for specific population subgroups, and exemptions where appropriate (for example, certain domestic production such as pharmaceutical products may require exemption from excises on alcohol inputs).
- Large informal production of surrogate products may require greater controls; protecting the tax base of the formal sector is probably a better long-term solution than lowering rates on the formal sector in the hope of attracting the informal base.
- The optimal level of taxation is country specific and cannot be driven by simple rules. Current levels of excises are generally too low and need to increase.
- Countries can estimate the external economic costs associated with alcohol use—such as public health care expenses related to the treatment of alcohol-related diseases and costs of criminal and less severe offenses caused by alcohol consumption—to establish a reliable base for determining the optimal level of excise taxes.
- A simple, comprehensive, and consistent approach across alcoholic products should be considered as a first best. Example: a beverage-specific rate per liter of alcoholic content, increasing on the basis of concentration brackets of alcohol (e.g., beer, wine, spirits), and indexed to inflation. Such a system aligns taxation on alcohol content and is easier to administer in low-income countries.
- In middle- and high-income countries, where consumption of higher-value products is relatively high, an excise combining both alcohol content and beverage value could be more appropriate.
- Effective administration and collection of excise taxes on alcohol is crucial:
  - Require a clear legal framework with licensing as well as reporting and filing requirements.
  - Fight illicit production and trade with significant means, close cooperation with neighboring countries, and strong enforcement, including appropriate fines and penalties.
  - Ensure coordination between customs and tax departments, irrespective of where the collection responsibility lies.

### Box 4: Excises and the protection of local industry (wine producers)
- Main wine producers mentioned: Italy, France, Spain, and South Africa.
- Observations:
  - Italy and Spain: wine is taxed at a zero rate.
  - France and South Africa: wine taxed at a low rate relative to beer.
  - Among OECD countries with non-zero excise duty on wine, France has the lowest rate (OECD 2020).
  - In South Africa, wine and beer excise taxes are calculated on a tax base which depresses the effective rate on wine.
  - Beer and spirits are taxed according to alcohol content; wine is taxed only on a volume basis in these jurisdictions.
  - WHO (2023) notes complexity in converting rate per volume to a single rate per alcoholic strength per volume due to diversity of alcohol strengths in wine, diversity of producers, and heterogeneity of wine relative to other alcoholic products.

### Box 5: The importance of limiting access to alcohol and of enforcement — the case of Finland
- Finland excise tax reforms and outcomes:
  - Since 2003, Finland has increased its alcoholic beverage excise tax system eight times, with an average increase from 2.5 percent to 11.5 percent, depending on product type (except for 2004, when alcohol excise taxes were reduced).
  - These reforms accompanied a decrease in consumption by 23 percent from 2007 to 2020.
  - The first increase in 2008 and 2009: decrease in total volume of alcohol consumed but an unrecorded increase in the volume of alcohol.
  - Subsequent reforms in 2012, 2014, and 2019: decrease in consumption of both recorded and unrecorded alcohol, credited to additional control and regulatory measures such as exclusive limitation of alcohol sales rights to the state’s retail units.
  - The 10 percent rate increase in 2018 was accompanied by a rise in total alcohol consumption due to relaxation of alcohol laws introduced in January 2018 (Karlsson and others 2020), which:
    - extended the right to sell alcoholic beverages to grocery stores, and
    - reduced the administrative burden of selling alcohol on site.
  - Implication: significant cross-border rate differences can subsist in the presence of strong and effective control measures; sustained measures over time are important to yield permanent reductions in consumption.

### Appendix 1: Selected country excise structures (high-level highlights and exact figures preserved)
- Algeria:
  - 77,000 DA per hectoliter of absolute alcohol (beer)
  - 110,000 DA per hectoliter of absolute alcohol (spirits)
  - 77,000 DA per hectoliter of absolute alcohol (wine)
  - 1,760 DA per hectoliter of absolute alcohol (other)
  - 50 DA per hectoliter of absolute alcohol (ethyl alcohol) since 2017
- Angola:
  - Beer: 15%
  - Spirits: 21%
  - Wine: 15%
  - Other alcoholic beverages: 4%–8%
  - Ethyl alcohol: 15% for 2021
- Argentina:
  - Beer: 8%–14%
  - Spirits: 20%–26%
  - Wine: n.a.
  - Other alcoholic beverages: n.a.
  - Ethyl alcohol: n.a. for 2021
- Azerbaijan:
  - Beer: 0.4 AZN per liter
  - Spirits: 4–12 AZN per liter
  - Wine: 0.2–2.6 AZN per liter
  - Other alcoholic beverages: 6 AZN per liter
  - Ethyl alcohol: 6 AZN per liter for 2022
- Burkina Faso:
  - Beer: Alcohol volume ≤ 8%: 30%; Alcohol volume > 8%: 40%
  - Spirits: Alcohol volume < 35%: 50%; Alcohol volume ≥ 35%: 70%
  - Wine: 70%
  - Other alcoholic beverages: Alcohol volume < 35%: 50%; Alcohol volume ≥ 35%: 70%
  - Ethyl alcohol: n.a. since 2023
- Finland (detailed brackets):
  - Beer:
    - 0.5% < Alcohol volume ≤ 3.5%: 28.35 EUR per hectoliter per degree
    - Alcohol volume > 3.5%: 38.05 EUR per hectoliter per degree
  - Spirits:
    - Standard rate: 5,035 EUR per hectoliter of absolute alcohol
    - Low strength spirits (that is, 1.2% < Alcohol volume ≤ 2.8%): 3,090 EUR per hectoliter of absolute alcohol
  - Wine:
    - 1.2% < Alcohol volume ≤ 2.8%: 36 EUR per hectoliter
    - 2.8% < Alcohol volume ≤ 5.5%: 198 EUR per hectoliter
    - 5.5% < Alcohol volume ≤ 8%: 287 EUR per hectoliter
    - 8% < Alcohol volume ≤ 18%: 421 EUR per hectoliter
    - Intermediate products (15% < vol ≤ 22%): 771 EUR per hectoliter
    - Intermediate products (vol ≤ 15%): 501 EUR per hectoliter
  - Ethyl alcohol: 5,035 EUR per hectoliter of absolute alcohol
  - Note: Low strength spirits specification repeated for 2022.
- France (highlights):
  - Beer:
    - Beer with alcohol ≤ 2.8% vol: 3.91 EUR per hectoliter per degree
    - Beer with alcohol > 2.8% vol: 7.82 EUR per hectoliter per degree
  - Spirits:
    - 1,834.42 EUR per hectoliter or 1,000 EUR per hectoliter of absolute alcohol
    - Low strength spirits: 917.72 EUR per hectoliter
  - Wine:
    - Still: 3.98 EUR per hectoliter
    - Sparkling: 9.85 EUR per hectoliter
    - Intermediate products (1.2% < alcohol volume ≤ 22): 198.91 EUR per hectoliter
  - Ethyl alcohol: 1,834.42 EUR per hectoliter or 1,000 EUR per hectoliter of absolute alcohol
- Italy:
  - Beer: 2.99 EUR per hectoliter per ° Plato
  - Spirits: 1,035.52 EUR per hectoliter of absolute alcohol
  - Intermediate products: 88.67 EUR per hectoliter
  - Ethyl alcohol: 1,035.52 EUR per hectoliter of absolute alcohol for 2022
- Senegal:
  - All listed beverage categories: 40% + 800 or 3000 FCFA per liter for 2021
- Spain (detailed):
  - Beer:
    - 1.2% < vol ≤ 2.8%: 2.75 EUR per hectoliter
    - vol ≤ 10.99 ° Plato: 7.48 EUR per hectoliter
    - 11 ° Plato < vol ≤ 15 ° Plato: 9.96 EUR per hectoliter
    - 15 ° Plato < vol ≤ 19 ° Plato: 13.56 EUR per hectoliter
    - vol > 19 ° Plato: 0.91 EUR per hectoliter and per degree
  - Spirits:
    - 958.94 EUR per hectoliter or 1,000 EUR per hectoliter of absolute alcohol
    - Low strength spirits: 226.36 EUR per hectoliter
  - Wine:
    - Alcohol volume ≤ 15%: 38.48 EUR per hectoliter
    - Alcohol volume > 15%: 64.13 EUR per hectoliter
  - Ethyl alcohol:
    - 958.94 EUR per hectoliter or 1,000 EUR per hectoliter of absolute alcohol
    - Low strength spirits: 226.36 EUR per hectoliter for 2022
- Thailand (highlights):
  - Beer: 22% + 430 THB per liter of pure alcohol
  - Spirits:
    - Clear spirits: 2% + 155 THB per hectoliter of pure alcohol
    - Dark spirits: 20% + 255 THB per hectoliter of pure alcohol
  - Wine and sparkling wine (made from grape): 0% or 10% (depending on the retail sale price) + 1,500 THB per liter of pure alcohol
  - Fruit wine (mixed with grape or grape wine): 0% or 10% + 150 or 900 THB per liter of pure alcohol (depending on retail sale price and absolute alcohol volume and/or container volume)
  - Other alcoholic beverages: 10% + 150 THB per hectoliter of pure alcohol
  - Ethyl alcohol: n.a. since 2017

### Appendix 2: Illustration of excise + VAT application (selected exact figures)
- Variables for Algeria, Finland, and France examples (Beer / Wine / Spirit):
  - Pretax price in LCU P0:
    - Algeria: 75 / 350 / 7,500
    - Finland: 3.5 / 12.5 / 30
    - France: 3.5 / 12.5 / 30
  - Volume in liters V: 0.33 / 0.75 / 0.5 (for all three countries)
  - Alcohol content in percentage A: 5% / 13% / 40% (for all three countries)
  - Excise tax rate in LCU per liter of absolute alcohol T:
    - Algeria: 770 / 770 / 1,100
    - Finland: 0.3805 / 4.21 / 50.35
    - France: 0.0782 / 0.0985 / 10.00
  - Excise tax revenue in LCU E = V x A x t:
    - Algeria: 12.71 / 75.08 / 220.00
    - Finland: 0.01 / 3.16 / 10.07
    - France: 0.00 / 0.07 / 2.00
  - Post-excise price in LCU P1 = P0 + E:
    - Algeria: 87.71 / 425.08 / 7,720.00
    - Finland: 3.51 / 15.66 / 40.07
    - France: 3.50 / 12.57 / 32.00
  - VAT rate R:
    - Algeria: 17% across beer, wine, spirit
    - Finland: 24% across beer, wine, spirit
    - France: 20% across beer, wine, spirit
  - VAT revenue VAT = P1 x r:
    - Algeria: 14.91 / 72.26 / 1,312.40
    - Finland: 0.84 / 3.76 / 9.62
    - France: 0.70 / 2.51 / 6.40
  - Total tax revenue T = E + VAT:
    - Algeria: 27.61 / 147.34 / 1,532.40
    - Finland: 0.85 / 6.92 / 19.69
    - France: 0.70 / 2.59 / 8.40
  - Post-tax price P2 = P0 + T:
    - Algeria: 102.61 / 497.34 / 9,032.40
    - Finland: 4.35 / 19.42 / 49.69
    - France: 4.20 / 15.09 / 38.40
  - Tax in percentage of retail (post-tax) price T/P2:
    - Algeria: 26.9% / 29.6% / 17.0%
    - Finland: 19.5% / 35.6% / 39.6%
    - France: 16.7% / 17.2% / 21.9%
- Notes:
  - VAT defined as valued-added tax.
  - LCU refers to local currency unit (Algerian dinar in Algeria and euro in both Finland and France).
  - For wine in Finland and France, the excise tax rate is expressed in liters of wine. E is thus calculated as V x t.

*Source: IMF How to Note (htnea2023004) content unit text as provided.*

### References

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- European Commission. “Taxes in Europe database v3.” Accessed August 23, 2022. http://ec.europa.eu/taxation_customs/tedb/ on August 30, 2022.
- OECD. 2020. Consumption Tax Trends 2020: VAT/GST and Excise Rates, Trends and Policy Issues. Paris: OECD Publishing.
- World Health Organization (WHO). “Taxation of Ethanol Production.” Accessed August 23, 2022. https://www.who.int/data/gho/data/indicators/indicator-details/GHO/taxation-of-ethanol-production.

### Modeling, optimal taxes, and normative analysis
- Gruber, J., and B. Kőszegi. 2004. “Tax Incidence when Individuals Are Time-Inconsistent: The Case of Cigarette Excise Taxes.” Journal of Public Economics 88 (9–10): 1959–87.
- O’Donoghue, T., and M. Rabin. 2006. “Optimal Sin Taxes.” Journal of Public Economics 90 (10–11): 1825–49.
- Kenkel, D. S. 1996. “New Estimates of the Optimal Tax on Alcohol.” Economic Inquiry 34 (2): 296–319.
- Shafer, H. 2014. “Optimal US State Alcohol Excise Taxes to Recover Government Cost of Excessive Consumption.” World Medical & Health Policy 6 (3): 231–41.
- Griffith, R., M. O’Connell, and K. Smith. 2017. “Design of Optimal Corrective Taxes in the Alcohol Market.” IFS Working Paper W17/02, Institute for Fiscal Studies, London.
- Parry, I. W, and J. A. Miron. 2009. “Should Alcohol Taxes Be Raised?” Regulation 32 (3): 10–13.
- Kenkel, D. S. 1996. “New Estimates of the Optimal Tax on Alcohol.” Economic Inquiry 34 (2): 296–319.
- Shafer, H. 2014. “Optimal US State Alcohol Excise Taxes to Recover Government Cost of Excessive Consumption.” World Medical & Health Policy 6 (3): 231–41.

### Data sources, surveys, and statistical reports
- Office for National Statistics (ONS). 2018. “Adult Drinking Habits in Great Britain.” May 1. https ://www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/drugusealcoholandsmoking/datasets/adultdrinkinghabits.
- European Commission. “Taxes in Europe database v3.” Accessed August 23, 2022. http://ec.europa.eu/taxation_customs/tedb/ on August 30, 2022.
- World Health Organization (WHO). 2023. “WHO technical manual on alcohol tax policy and administration.” World Health Organization, Geneva.

*References list as provided in htnea2023004 - References.*

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_Source: https://www.imf.org/-/media/files/publications/howtonotes/2023/english/htnea2023004.pdf_