Excise taxes on alcoholic beverages are per unit taxes levied by governments to raise revenue or used as corrective taxes to control health-related externalities Excise taxes on alcoholic beverages are per unit taxes levied by governments to raise revenue or used as corrective taxes to control health-related externalities associated with consumption of alcohol. Almost all countries tax alcohol. This page addresses the economics and politics of alcohol excise taxation. Excise taxation is expected to have some impact on retail prices of alcohol beverages. A standard exercise in economics is to analyze "who actually pays the tax." Is it consumers, producers, or both? Tax incidence analysis is the study of how a tax burden is shared between consumers and producers, regardless of statutory legal obligations to collect the tax. In simple terms, this is an issue of whether an excise tax is fully passed-through to final consumers or not. Pass-through rates of less than 100% imply that some portion of a tax is shifted forward to consumers and the remaining portion is shifted backwards to producers. Tax pass-throughs to retail prices depend on the elasticity of demand relative to the elasticity of supply. In competitive markets, increases in retail prices will be greater (smaller) as elasticity of demand decreases (increases) and elasticity of supply increases (decreases). These same principles apply in the long-run, except the expectation for many industries is that long-run supply is perfectly elastic (constant cost industry), and an excise tax will be fully shifted to retail prices. The pass-through rate in this case is 1.0 or 100%. Some empirical studies report a pass-through of more than 100%. There are several reasons why this might occur. First, there are menu costs of price changes that lead to sticky prices, so producers and retailers recognize that less frequent price changes might be optimal over the longer-run. Second, the market might be non-competitive and rival producers strategize on pass-throughs, which depend generally on complex features of demand functions. Third, price structures across brands and beverages are complex reflecting substitution possibilities, and some products may have pass-throughs of less than unity while others more than unity. In addition to direct effects on price, a tax based on alcohol content can result in producer substitution toward non-taxed features (Barzel effect) while a simple unit tax on gallonage can result in consumer substitution toward higher quality, higher-priced brands and beverages (Alchian-Allen effect). Other substitutions, such as trading-down to lower-priced brands and…