Modeling the Impact of Alcohol Tax Increases in Montenegro by Socioeconomic Groups [Working Paper Series]

This Working Paper was written by the Institute for Socio-Economic Analysis in Montenegro. The working paper models the impact of alcohol tax increases on consumption and tax revenues. The findings show that spirit consumption is responsive to price increases, with an overall price elasticity of -0.89. Following a 10% increase in price, spirit consumption would decrease by 11% in low-income households, specifically, and 6.8% in high-income households. Low-income households would also decrease the quantity of wine and beer consumed in response to a price increase, which demonstrates that alcohol taxes are progressive in nature. The researchers estimate that raising the excise tax on spirits by 20% would reduce consumption by 4.18%, while increasing total tax revenue by 9.12%. Furthermore, a 30% tax increase would reduce consumption by 6.92% and increase revenue by 12.46%. The working paper concludes with recommendations for policy makers to raise alcohol taxes to improve public health, especially in low-income households, and raise additional tax revenue.

A Policy Brief based on this working paper can be found here.