THE WELFARE EFFECTS OF ALCOHOL TAXATION

This paper analyzes the question of how to appropriately tax alcoholic beverages at a disaggregated level. Using the theory of tax reform, t he social cost of raising revenue from different alcoholic beverages i s calculated. The externality associated with alcohol consumption is e xplicitly modeled. The problem is approached by building a multistage budgeting model of expenditure which is necessitated by the lack of el asticity information at the required level of disaggregation. The mode l is applied to a 1989 data set for Ontario, Canada. Evidence for the existence of welfare-improving tax changes is found.