A tax is a payment made by firms and consumers to the government.

Alcohol is classed as a ‘de-merit good’ i.e. has a large social cost (private
cost + external cost). An example of alcohol price is around 32% of Beer
tax. The criteria used for evaluating will be allocative efficiency and equity
(fairness) for stakeholders.

One argument in favour of taxing alcohol is that it reduces the

over-provision/consumption of alcohol i.e. it solves the market failure. This is
because before tax, over-provision occurs as there could’ve been imperfect
information about the long run private costs (LRPC), leading to a market
quantity/demand > optimum quantity/demand or the external costs of
consumption are ignored e.g. violence and crime. After tax, prices rise,
leading to a fall in quantity sold as consumers could’ve been more willing to
pay for a lower price. Therefore, the market failure is reduced (Q1 → Q2).

This can be evaluated as a weak argument because it assumes the

government has the objective of maximising welfare to society. However a
lot of governments are corrupt and benefit themselves as they might have
other objectives such as economic growth. This argument also assumes the
government has perfect information about external costs/the size of the tax.
This could lead to over-taxation, leading to under-provision or
under-taxation, leading to over-provision (market failures). Lastly, this
argument also assumes that the government is perfectly effective/laws and
regulations are followed e.g. firms pay corporation tax. This could lead to an
increase in sales in the informal economy. Moreover, demand may be price
inelastic because de-merit goods e.g. alcohol may be necessities for some
people e.g. addicts. However, this can also be argued to be a strong
argument in favour of taxing alcohol. For example, because there will be
some reduction in demand and quantity sold towards the optimum quantity
and the UK government and other governments tax many types of alcohol,
this implies that it is effective at reducing quantity sold. Although, the
government could only be doing this to increase tax revenue.
Overall, I think this argument about taxing alcohol is a weak argument as
even though other governments are using this policy does not mean that it
is going to work for our/another government in terms of solving the market
failure.

A disadvantage of an alcohol tax is that it can be inequitable for consumers.

This is because the price of alcohol will increase (P1 → P2), and therefore
reduce the amount of income available to use for other products which could
reduce the standard of living for some people. This is particularly bad for
both low income households as they may experience a fall in income for
necessities and addicts as they are large consumers, leading to a large fall in
income availability for other products. In addition, the alcohol tax is also
unfair to both alcohol producers/firms who gain a lower revenue (see
diagram), leading to lower profits which could mean less investment into
their companies and less capital available to invest in innovation and for the
government who have higher planning, implementation and monitoring
costs.

However this a weak argument as a fall in consumption (Q1 → Q2) may lead
to a fall in LR private costs of drinking i.e. a rise in health, leading to both a
rise in productivity/income and a rise in quality of life for consumers.
Another reason is because alcohol drinkers are paying for the external costs
they create i.e. NHS costs. Furthermore, the government gains from extra
revenue so they can increase government spending on e.g. healthcare and
education or reduce taxes elsewhere. The government could also use this
money to reduce national debt. In addition, the external costs e.g. crime fall
for third parties.

Overall , I think that alcohol taxes are fair as most stakeholders involved
e.g. the government benefit including consumers in relation to their LR
private costs falling.
Another argument against an alcohol tax is that a ‘minimum price’ on alcohol
would be better. This will increase price (P1 → P2) and decrease the quantity
sold from the market quantity to the optimum quantity for society (Q1 →
Q2). In addition, firms maintain or increase their total revenue, assuming
that demand for alcohol is price inelastic. This argument is strong if alcohol
inelasticity is a large % of GDP/economy e.g. in Scotland. However, this
argument is a weak argument as the government doesn't gain any tax
revenue.

To conclude, the arguments for an alcohol tax do outweigh the arguments

against as it is more important for there to be at least some reduction in
demand/quantity sold towards the optimum quantity for society than alcohol
producers gaining lower revenue in the long term. A better way forward is a
tax and an increase in information about LR private costs as that may mean
that there is some decrease in demand for alcohol with a fall in price.