BLOG: The Pass-Through Rates of Excise Taxes to Alcoholic Beverage Prices: New Evidence from OECD Countries

Among all policies aimed at reducing heavy alcohol use and related harms, increasing taxes is the most effective intervention. Therefore, it matters greatly how much alcohol prices increase in response to per unit tax increase – the so-called tax pass through rate. Nevertheless, evidence is still scarce.
In this blog post, Ce Shang introduces groundbreaking research with colleagues Anh Ngo and Frank J. Chaloupka. They have examined the pass-through rates of various alcoholic beverages such as beer, wine, and liquors in 27 OECD countries from 2003 to 2016. By analzying the tax pass-through rates on alcoholic beverages comprehensively, this new research provides insights for more informed, efficacious, and effective alcohol taxation policies to reduce alcohol harm and promote healthy behaviors.
Ce Shang and colleagues evaluate how taxes are passed differently to various price levels along the price distribution (i.e., higher- vs. lower priced products), showing that for most alcoholic beverages, the tax pass-through rates are higher for higher-priced products. Overall, manufacturers of beer and wine may adjust down the prices of lower-priced products in response to past tax hikes to keep these products affordable. The alcohol industry in responding strategically to taxes in order to keep cheap alcohol as cheap as possible. Thus, despite tax increases, prices of cheap products may still be low…