Rachel Griffith, Martin O'Connell, Kate Smith, 11 December 2020

Negative externalities from consumption are common, ranging from the social and health costs of drinking, smoking or drug abuse, to the environmental damage caused by fossil fuel use. This column exploits the introduction of a price floor for alcohol in Scotland but not in other parts of the UK to assess the efficacy of a price floor for tackling the externalities associated with alcohol consumption. It shows that, if the external cost of an additional drink is at least moderately higher for heavy compared with lighter drinkers, then a price floor leads to larger welfare gains than a simple Pigouvian-style tax on ethanol. However, a tax system that taxes the ethanol in stronger drinks more heavily can do as well as a price floor at reducing heavy drinking while raising tax revenue.

Matteo Galizzi, Marisa Miraldo, 12 June 2010

Smoking, heavy drinking, and being overweight are known causes of disease. This column presents experimental evidence to try and understand why people ignore this advice. It compares lifestyle choices with people’s attitudes to risk and their patience, finding that while people with an unhealthy lifestyle are no more risk-loving than other people, they are more impatient.

CEPR Policy Research