Evaluation of the demand for alcoholic beverages and tax policy in Turkey

Abstract

The tax burden on alcoholic beverages has been rising remarkably in Turkey. This policy has significantly increased tax revenue in Turkish Lira, but it has not generated more tax revenues in terms of U.S. dollars since 2013. This study estimates price and income elasticities for select alcoholic beverages using demand models and simulates the impact of changing tax policies on demand in Turkey. Results show that the cumulative effect of increasing prices will eventually decrease total tax revenue. Simulations suggest that the government should periodically reassess its tax policy to prevent bootleg drinking which results in deadly incidents and hospitalizations.