The complex attitudes to alcohol taxation

Abstract

Alcoholic beverages are taxed at very different rates across the EU, which implies extensive cross-border shopping. Therefore, there is an ongoing debate about harmonization of alcohol taxes among countries. Sweden, with a tradition of high alcohol taxes due to public health arguments, has the highest excise duties on spirits in the EU. But, because of this, the occurrence and possible problems caused by cross-border shopping are also extensive. Using a questionnaire survey I analyse the Swedes’ attitudes to alcohol taxation and find that these two sides of the coin are important determinants. Many respondents want to decrease the alcohol tax, while some even want to increase it. Those most positive to alcohol taxation are those who regard increased alcohol consumption as a worrying problem and those living in areas where many adults are treated for alcohol-related diseases. However, the ordered-probit analysis also shows that those who support the EU membership are more supportive of reduced taxation to harmonize the Swedish tax with those in other EU countries. Those who live in regions where privately imported alcohol is substantial are also more reluctant to alcohol taxation.

Acknowledgements

This work has benefitted from comments from Fredrik Carlsson, Olof Johansson-Stenman, Åsa Löfgren, Peter Martinsson, and from an anonymous referee. Financial support from the Malmsten Foundation is gratefully acknowledged.

Notes

¹ The major reason for this cross-border shopping is the large differences in taxation across the Union. The effects of this have been addressed in several articles. E.g. Asplund et al. (2007) study consumer behaviour, and Crawford and Tanner (1995) and Crawford et al. (1999) analyse the effects on tax revenue. Cnossen (2007) acknowledges that cross-border shopping is an issue especially for high-duty countries like Sweden. However, also in the low-duty country Cyprus, Andrikopoulos and Loizides (2000) found that demand was sensitive to prices in other countries even before their association with EU.

² See Trolldal et al. (2005).

³ See SOU (2005).

⁴ This public-health motive can also be seen as an externality motive, since alcohol-related health problems causes external costs to the health-care sector.

⁵ See SOU (2005).

⁶ See http://www.som.gu.se/english.htm for more information about the SOM Institute.

⁷ Sweden has 21 counties.

⁸ The municipal income tax is the main income tax in Sweden and is paid by all income earners.

⁹ The χ²-test of how many of the respondents who state that they have no opinion tells that the difference is significant, with a χ² with one degree of freedom equal to 342 and the χ² associated with the two distributions has 16 degrees of freedom and equals 151, which is also strongly significant.

¹⁰ Also Hammar et al. (2008) find that among 11 taxes, the alcohol tax is the one that the fewest people lack opinion about.

¹¹ See, e.g. Lyon and Schwab (1995).

¹² Also these distributions are significantly different from each other according to a χ²-test.

¹³ Crawford and Tanner (1995) and Crawford et al. (1999) analyse the effects of alcohol taxation in the UK after the single European market and discuss how increased or decreased excise taxes on alcohol would affect tax revenues.

¹⁴ Denmark and Germany are the two countries from where most private import comes (Gustafsson and Trolldal, 2004).

¹⁵ This procedure has also recently been used by e.g. Ågren et al. (2006).

¹⁶ Only coefficients are presented in the table, since I am mainly interested in what increases or reduces the acceptance for alcohol taxation. However, marginal effects for each outcome as well as estimates of the threshold parameters are available on request.

¹⁷ I have only used those respondents who actually had an opinion.

¹⁸ These two measures are, perhaps surprisingly, uncorrelated.

¹⁹ In Sweden you have to be 20 years old to shop at the state owned retail monopoly.

²⁰ The other explanatory variables are uncorrelated with this variable and the results are robust to using political sympathies instead.

²¹ In alternative specifications I have looked at several age groups, but only teenagers stand out.

²² See the Appendix for a definition of high‐ and low‐income earners.

²³ Trolldal et al. (2005).