Optimal alcohol taxation: Simulation results for Estonia

Abstract

The aim of this paper is to empirically estimate the optimal level of alcohol taxes for Estonia on externality as well as fiscal grounds. For this purpose, a static general-equilibrium model with a representative agent was used. Simulation results showed that raising alcohol taxes a certain amount is warranted. However, if one were to use conservative parameter values, this result is undermined. With an eye towards future research, more reliable estimates for several parameters are required in order to increase the policy relevance of the model.

Keywords:

• alcohol
• externalities
• optimal tax

JEL classification:

• H21
• H23