Taxes on the Consumption of Alcohol Beverages. Ineffectiveness of the alcohol Tax in Mexico. New evidence

Abstract

Excise taxes on alcoholic beverages are applied according to two basic principles: Ad valorem and
ad quantum. In Mexico, the Special Tax on Production and Services is an ad valorem tax with different
quotas according to alcoholic content, combining both principles. However, under this system,
lower-quality beverages with a high alcohol content are among the cheapest on the market, which
demonstrates the tax’s failure to achieve its objective. This study tests the modification of the ad
valorem system and first-hand collection to measure government revenue and the regressive effects
of the tax. Our findings suggest that our proposal would significantly increase tax revenue, thus meeting
the objective of the excise tax to provide social benefits and reduce illegal trade. Furthermore, we
demonstrate that the distribution of the tax burden is progressive; it is distributed disproportionately
among higher income groups. This does not include the additional reduction in health problems, from
which lower income groups benefit disproportionately.