Income and price elasticities of demand for alcoholic drinks

Abstract

This paper provides estimates of income and price elasticities of demand for beer, wine and spirits in the UK and utilizes these elasticities to estimate the impact of the increase in tax rates, announced by the Chancellor in his revised November 1994 budget, on total tax revenues. The estimates of additional tax revenues based on our model are lower than those expected by the Chancellor. The results reported in this paper suggest that if the Chancellor were to realize the revenues he expects from taxation of alcoholic drinks he would have to increase the tax rates on wine and lower those on beer and spirits.