A challenge in choosing a special consumption tax rate which falls on all alcohol to reduceexcessive alcohol consumption stems from the heterogeneity of consumers. In particular, themajority do not consume to excess. ABS data (ABS, 2006) indicate that about 25 per cent of alcoholconsumers consume at a risky level and <15 per cent at a high-risk level. A larger share oftotal alcohol consumption, about 30 per cent, is estimated by Collins and Lapsley (2008) to be atabusive levels. A general tax on alcohol will achieve efficiency gains for the excessive consumersas illustrated in Figure 2. But, at the same time, the tax will reduce alcohol consumption by theother consumers and cause efficiency losses. Choosing a tax rate has to recognise and then balancethese conflicting efficiency effects.
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