Fiscal and Externality Rationales for Alcohol Policies

The Question

What are the optimal levels of alcohol taxes and drunk driver penalties in terms of their effects on reducing drunk driving and overall welfare?

What we found

Compared to a drunk driver penalty that has an equal effect on reducing drunk driving, an alcohol tax will create higher overall welfare gains due to the government revenue it generates.

Why it matters

Alcohol taxes are currently far below their optimal levels in most cases.