The Impact of Raising Alcohol Taxes on Government Tax Revenue: Insights from Five European Countries
Original article
Main summary
Study background
Increasing excise taxation of alcoholic beverages is considered a best practice in alcohol policy. It is also recognised as one of the best buys by the World Health Organization, as increasing taxation has proven to be an effective and cost-efficient method for preventing and reducing alcohol-related social and health harm. In addition to reducing harm, there are also economic reasons for implementing excise taxation on alcohol – including generating revenue and paying for negative consequenses from alcohol use.
Nevertheless, some actors, primarily from the alcohol industry, continue to claim that alcohol tax increases could result in lower tax revenue as well as increased unrecorded alcohol consumption. Consequently, some governments avoid raising alcohol taxes.
The hesitance to raise alcohol excise taxes is in stark contrast with developments in tobacco control: in the European Region, cigarettes have become less affordable in 19 countries and only more affordable in nine countries between 2012 and 2022. For tobacco, researchers found that the tax share in the retail price of the most widely sold brand ranged between 31% and 86%. In contrast, the tax shares for alcohol is estimated at 6% for wine, 14% for beer and  and 31% for spirits.
In most countries in the European Union, alcohol excise taxation levels have remained stable in recent years. However, over the past decade, Estonia, Latvia and Lithuania have increased taxation rates on alcohol to decrease the high levels of alcohol consumption and related harm. In contrast to the Baltic countries, alcohol excise taxes remain under-utilised as a measure for fiscal or alcohol control policies in Poland and Germany.
Researchers note that this represents a natural experiment – with the Baltic countries being the intervention group with rigorous alcohol policies in place,  and Germany and Poland being the control group having implemented fewer alcohol policy measures.
Study purpose
In this study, researchers examine the generated alcohol excise tax revenues in five high-income countries of the European Union. Specifically, they aim to describe the variation of tax revenue between countries and investigate how changes in taxation are related to changes in government tax revenue.
The researcher calculated the annual per capita alcohol excise tax revenue for the population aged 15 years or older, total tax revenue, gross domestic product and alcohol consumption. Further analysis was performed to identify whether changes in alcohol excise taxation were actually linked to changes in alcohol excise revenue.
Study results
In 2022, the per capita alcohol excise tax revenue was lowest in Germany (€44) and Poland (€90) and considerably higher in Latvia (€167), Lithuania (€188) and Estonia (€218).
A similar but even clearer pattern was found in the proportion of alcohol excise tax revenue from total tax revenue. While alcohol excise tax revenue only contributed 0.4% to the total tax revenue in Germany, this share was considerably higher in the other four countries (Estonia: 2.3%, Latvia: 2.1%, Lithuania: 2.9%, Poland: 2.7%)
When adjusting for inflation, researchers found that the real per capita alcohol excise tax revenue has declined in Germany (− 22.9%), Poland (− 19.1%) and Estonia (− 4.2%) between 2010 and 2022. Inflation-adjusted increases in per capita alcohol excise tax revenue could be observed only in Lithuania (+ 49.3%) and Latvia (+ 57.2%).
This means that increasing alcohol taxation was not linked to decreased but increased government revenue. The researchers conclude that policymakers can increase revenue and reduce alcohol consumption and harm by increasing alcohol taxes.
Key Points for decision-makers
- In 2022, the per capita government tax revenue from alcohol sales was considerably higher in the Baltic countries (Latvia = €167; Lithuania = €188; Estonia = €218) than in Germany (€44) and Poland (€90).
- Periods of increasing alcohol taxes were linked to increasing government tax revenue.
- Increasing alcohol excise taxes has the potential to lower alcohol consumption and the resulting harm, as well as increase revenue for the government.
Abstract
Background and Objective
Reducing the affordability of alcoholic beverages by increasing alcohol excise taxation can lead to a reduction in alcohol consumption but the impact on government alcohol excise tax revenue is poorly understood.
This study aimed to
- describe cross-country tax revenue variations and
- investigate how changes in taxation were related to changes in government tax revenue, using data from Estonia, Germany, Latvia, Lithuania and Poland.
Methods
For the population aged 15 years or older, the researchers calculated the annual per capita alcohol excise tax revenue, total tax revenue, gross domestic product and alcohol consumption. In addition to descriptive analyses, joinpoint regressions were performed to identify whether changes in alcohol excise taxation were linked to changes in alcohol excise revenue since 1999.
Results
In 2022, the per capita alcohol excise tax revenue was lowest in Germany (€44.2) and highest in Estonia (€218.4).
In all countries, the alcohol excise tax revenue was mostly determined by spirit sales (57–72% of total alcohol tax revenue).
During 2010–20, inflation-adjusted per capita alcohol excise tax revenues have declined in Germany (− 22.9%), Poland (− 19.1%) and Estonia (− 4.2%) and increased in Latvia (+ 56.8%) and Lithuania (+49.3%).
In periods of policy non-action, alcohol consumption and tax revenue showed similar trends, but tax level increases were accompanied by increased revenue and stagnant or decreased consumption.
Conclusions
Increasing alcohol taxation was not linked to decreased but increased government revenue. Policymakers can increase revenue and reduce alcohol consumption and harm by increasing alcohol taxes.
