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What is the relationship between taxes and harm?

Even though taxes are not always fully passed through to consumers in the shape of higher prices, it is nevertheless generally believed that alcohol taxes succeed in reducing consumption and health harms. ‘Natural experiments’, where governments have suddenly and drastically reduced alcohol taxes offer further evidence:

  • In 2004, Finland reduced alcohol taxes ahead of neighbouring Estonia joining the European Union, and so Finland being required to reduce import restrictions on cheaper alcohol from abroad. Tax on spirits was reduced by 44%, beer 32% and wine 10%. As a result, alcohol consumption rose by 10% in 2004, alcohol-attributable deaths by 19%, deaths from liver disease by 29% (see figure 9) and alcohol-related hospitalisations rose by 9%. However, the effect on crime was more ambiguous.[1]

 


 

  • In 1999, World Trade Organization regulations required Switzerland to reduce the tax rate on imported spirits, leading to a 30–50% drop in their prices. As a result, consumption of spirits rose by 29%, with no significant change in wine or beer consumption.[2]

Health economic modelling is a further source of information on the likely health effects of different tax regimes. The Sheffield Alcohol Policy Model, described below, has estimated that:

  • A one-off 1% increase in all alcohol taxes would reduce annual alcohol-attributable deaths by 35 (0.3%) and alcohol-attributable hospital admissions by 1,624 (0.2%) in England.[3]
  • A one-off 10% increase in all alcohol taxes would reduce annual alcohol-attributable deaths by 351 (2.9%) and alcohol-attributable hospital admissions by 16,309 (2.0%) in England.
  • The reintroduction of the duty escalator for five years would reduce annual alcohol-attributable deaths by 605 (5.0%) and alcohol-attributable hospital admissions by 29,507 (3.7%) in England.

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[1] Makela P and Osterberg E (2009)., ‘Weakening of one more alcohol control pillar: a review of the effects of the alcohol tax cuts in Finland in 2004’, Addiction 104:4, pp. 554–63

[2] Heeb J L (2003)., ‘Changes in alcohol consumption following a reduction in the price of spirits: a natural experiment in Switzerland’, Addiction 98:10, pp. 1,433–46

[3] Angus C, Holmes J, Pryce R, Meier P and Brennan A (2016)., ‘Alcohol and cancer trends: Intervention Studies University of Sheffield and Cancer Research UK’ <www.cancerresearchuk.org/sites/default/files/alcohol_and_cancer_trends_report_cruk.pdf>