This article surveys alcohol consumption, taxation and regulation in the European Union (EU). It uses the estimates of cost-of-illness studies to gauge the external costs of harmful alcohol use. In all but one member state, the costs exceed alcohol excise duty collections. An optimal alcohol excise is difficult to design, because the welfare gains from a reduction in socially costly heavy drinking must be balanced against the welfare loss from a fall in moderate drinking. This suggests that while an alcohol excise increase may be efficiency improving, complementary regulatory measures, which focus on specific problem groups, should be an important element of the policy package. A case can also be made for reducing wasteful crossborder shopping by raising the minimum duties on wine, beer and spirits, preferably in line with their relative alcohol content.

Several African countries have to increase their tax revenues to finance human and economic development. General consumption taxes, such as VATs, are the preferred instrument for doing so, because they are less detrimental to growth than income taxes. To enable their use, VAT design has to be improved. Currently, many VATs are so riddled with exemptions and zero rates on domestic goods that they resemble extended excise tax systems, while the standard rate is mainly confined to luxury goods. VAT base-broadening would not only increase revenue, but also reduce the economic distortions and administrative complexities of most taxes. JEL-Code: H210, H250.

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