The Effect of Per-Unit Ethanol Tax on Wine Prices : A Comparative Perspective: Sweden and Germany

Sammanfattning: After Swedish alcohol retail monopoly, Systembolaget, changed the taxation for alcohol sold in retail stores according to its absolute alcohol content in 1992, Ponicki et al. (1997) used this opportunity to examine the effect of per-unit alcohol tax on the prices of spirits, comparing before and after, and found that beverages from higher price range experienced a relatively smaller rise in price in percentage terms than the beverages from lower price range, which can be described as compression of prices. This paper builds on the statement and findings by Ponicki et al. in 1997 and looks at whether or not unit taxes on ethanol content, as opposed to ad valorem taxes, compress the price range and make low quality wines relatively more expensive after-tax in Sweden as compared to no alcohol-content taxation. For the purposes of comparison German wine market is selected due to its market specifics (no per-unit taxes on wine), geographical proximity and availability of wide range data. The perception that the Swedish Pigouvi-an alcohol content tax should make wines in low price ranges relatively more expensive than its pre-tax price and in high ranges relatively cheaper (Kronstam, B.-G., 2010) did not receive thorough support in this paper.