OPTIMAL TAXATION - THE MIX OF ALCOHOL AND OTHER TAXES

This article compares the effects of two policies aimed at promoting e fficiency in the taxation of alcoholic beverages. One policy is to set alcohol tax rates at a level that corrects for excessive social costs of alcohol consumption. The second is to view alcohol taxes as a subs titute for other taxes and apply the prescriptions of optimal tax theo ry to attain the efficient mix of tax revenues. Estimates of the diffe rential effects of the two policies suggest that the second policy req uires a higher tax rate on alcohol and produces a greater welfare gain .