Alcohol Demand, Externalities and Welfare-Maximising Alcohol Taxes

Alcohol production and consumption, starting with beer-type products, has been a feature of human life for at least 8000 years (Poelmans and Swinnen 2011). Production and consumption of wine came after beer, but it is thought that by about 3000 BC winemaking skills were well developed in Egypt (Clark and Rand 2001). Spirit consumption and production came last, and while distillation for consumption may have taken place earlier, it has been a part of human life since at least the first century AD (Forbes 1970). Today, alcohol consumption is widespread, and in a 12-month period just over one half of all men and just under one third of all women will have consumed alcohol (WHO 2011, p. 14). In terms of the importance of alcohol in the consumer budget, there is significant variation, both between and within countries, but Selvanathan and Selvanathan (2005, p. 209) report that on average the people of the world devote approximately 3.2 per cent of their income to alcohol; alcohol is therefore an important global consumption good.