Do Beer Taxes Make a Difference?

In the #3 spot, behind water and tea, beer is one of the world’s most popular drinks.

As for annual consumption, Czechia and Austria, at 6.77 and 6.3 liters, are at the top with Germany (5.57) close behind. Meanwhile, in Africa, the beer drinkers live in Congo (5.11) and Gabon (5.31):

It makes sense that so popular an alcoholic drink will be taxed.

Yes?

Beer Taxes

EU countries do not have a choice. They have to tax beer at a minimum of €1.87 per 100 liters (26.4 gal) and degree of alcohol content. As a result, the lowest tax they pay is €0.03 ($0.03) for a 330ml (11.2 oz) bottle of beer with 5 percent alcohol content.

Shown below, the countries with the highest beer taxes are Finland €0. (63 /$0.66 per 330ml beer bottle), the U.K. (€0.37/$0.40), and Ireland (€0.37/$0.39 per beer). Meanwhile, at €0.03 ($0.03) per beer bottle, Germany, Luxembourg, and Spain are at the bottom:

Much lower in the U.S., and varying by state, Tennessee has the highest beer tax at $1.29 per gallon while in Wyoming, they pay the least at $.02 per gallon of 5% ethanol.

Sin Taxes

The levy on beer is a typical sin tax. Napoleon III summarized the allure of sin taxes when, urged to forbid smoking, he said, “This vice brings in one hundred million francs in taxes every year. I will certainly forbid it at once–as soon as you can name a virtue that brings in as much revenue.” As Napoleon implies, demand for beer, cigarettes and sugary drinks tends to be less sensitive to price hikes. Called inelastic, the quantity demanded minimally sinks when a tax elevates the price.

Consequently, although the tax might not improve health, it will create revenue. In Tennessee, between July 2022 and 2021, beer taxes generated more than $19 million–$1.6 million more than the state had budgeted.

Our Bottom Line: Regressive Taxes

As economists, we can look at taxes through a progressive, regressive, or proportional lens.

Examples of the three approaches take us to typical taxes. In most developed nations, the income tax is progressive because marginal rates climb with affluence. By contrast, taxes that charge everyone the same amount like the sales tax are regressive. The key here is the percent of your income. If everyone pays the same beer tax, for example, then, it will occupy a bigger proportion of the income of those that earn less. Meanwhile, the 12.4% U.S. Social Security tax rate below its $160,200 cap makes it a proportional tax.

We can see earners below $40,000 are the highest beer drinking cohort.

Perhaps the Gallup statistics answer our title and confirm academic hypotheses that sin taxes have a regressive impact and minimally influence our demand.

My sources and more: Thanks to Dr. Charles Dinerstein’s comment on Colombia’s junk food tax for inspiring today’s post. From there, two NBER papers, here and here, had the most up-to-date discussion as did this Tax Foundation look at beer taxes. But also, I recommend looking at Gallup, a Wharton podcast and Dr. Dinerstein’s research, Then finally, as always, Our World In Data had some statistics. (Please note that several of today’s sentences were in a previous econlife post.)