The visible hand in economics

The regulation of beer

Posted on: August 9, 2007

I realise that a lot of important economic figures were released today, however, I have found an issue more important than any amount of labour market data, the regulation of beer.  Now, according to this article, most binge drinkers drink beer.  So they think we can reduce binge drinking by taxing beer, and reducing availability late at night.

I think that they have ignored that fact that their are substitutes to beer, and that if someone wants to binge drink they will drink them instead.  The reason I drink beer when I go on a bender is to minimise the damage the next day.  If they banned beer from me I would drink Vodka, and that would cause significantly greater negative social externalities, and leave me with a worse hangover.

Having a tax on alcohol is a different story.  If alcohol causes a negative social externality, tax it so that the social cost=the social benefit.   However, taxing beer alone simply gives people the incentive to find other drinks, as those other drinks are more potent regulation is likely to worsen the social externality.   Do you think the same argument holds for taxing cigarettes?  When we tax cigarettes are we really giving people the incentive to move onto harder drugs instead?

3 Responses to "The regulation of beer"

I can’t believe I am suggesting this, but perhaps a tax that would encourage brewerys to produce lower alcohol beer, presumably leading to lower alcohol consumption (as was the case with VB, changing from 4.9% to 4.8%). Not too keen on only having weak beer though. Apparently its like sex in a canoe.

I don’t mind the sex bit, but the weak beer does scare me. How are the taxes in Australia set up, are they on alcohol percentage? It makes sense that the brewer would lower %’s if beer at 4.9% is taxed but not at 4.8%. Or if the tax depended on the alcohol content of the drink.

Ultimately they should determine the relationship between negative social externalities and alcohol content, then when they know the relationship set up a tax based on it.

I have to admit though, at a personal, non-objective, non-economist level, I would cry if they took away my beers.

Apparently they stand to save up to $20m a year in tax payments. The spokesman for Foster’s, Ben Wicks said the change would not affect the taste of the beer. I am so relieved.

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