Nova workboard

a blog from young economists at Nova SBE

Taxation on alcohol: decreasing society’s burden and increasing welfare

According to the World Healthcare Organization (WHO) estimations, Portugal is the 11th higher consumer of alcohol per capita in the world. You may consider that drinking is part of the Portuguese “life style”, and that it is a cultural matter that we should stay out of. But should we?

In 2013, of all Portuguese deaths, 2.2% were attributable to alcohol consumption. Moreover, there is a health, social and economic burden borne by the society due to the harmful consumption of alcohol: (1) direct costs in health, police, criminal justice, unemployment and welfare systems; (2) indirect costs due to loss in workforce productivity; and (3) intangible costs like diminished quality of life of drinkers and the people linked to them. Broadly, it is estimated that the cost of alcohol to society, on average, in high-income countries, is 2,5% of GDP.

However, we should preserve the health benefits of the moderate alcohol consumption. So my kick off question is: is the Portuguese population drinking moderately?

According to the 2014 report, “A Situação do País em Matéria de Álcool”, the consumption of alcohol per capita in Portugal is 12,9 litres of pure alcohol per year, which is above the 10,9 average of Europe Region WHO. This suggests there is a drinking problem in Portugal that needs to be tackled. Moreover, a major concern is the harmful alcohol consumption of young adults. Youth evidenced 18% of binge consumption against 12% for all consumers. Same figures apply to severe intoxication (11% in youth against 6% in total population), being the 15-24 years-old the group with the highest prevalence. In addition, 46% of the 15-24 and 48% of 25-34 years-old consumes six or more alcoholic drinks in one occasion, which are the highest rates amongst all the decennials.

Therefore, there is a call for policy actions to tackle the behaviour of consumers, particularly young adults that might be endangering their future.

My suggestion to address this issue is increasing the taxation over alcoholic beverages, supported by the research “The Effectiveness of Tax Policy Interventions for Reducing Excessive Alcohol Consumption and Related Harms”, American Journal of Preventive Medicine. This research suggests that raising alcohol taxes is an effective strategy to reduce excessive alcohol consumption and its harms. Furthermore, it also suggests that the impact of a tax increase will depend on factors such as disposable income and the demand elasticity (how consumption changes with changes in prices) for alcohol. On this matter, “The Effects of Prices on Alcohol Use and its Consequences”, Alcohol Research & Health, found that youth is more responsive to price changes than the general population (an increase in the price of alcohol will decrease the consumption of alcohol in youth more than in the other groups, exactly what we want!).

As you can see in the statistics presented first, Portugal is struggling to reduce the harmful consumption of alcohol. Together with the previous arguments that the tax can decrease the consumption of alcohol, I believe that the optimal tax, which maximizes wellbeing and diminishes the cost of drunken people and their actions to the society, is higher than the tax in place right now.

Concluding, we should increase the tax on alcohol closer to the optimal tax!

 

Patrícia Sofia Pinto e Filipe 

Master in Economics – Public Finance

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Author: studentnovasbe

Master student in Nova Sbe

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