1. Prohibition failed
2. No politician could support it without almost losing their jobs (popular opinion would definately be against it.

Interesting how politics affect economics, and how they can do the opposite of what many are meant to do; as they stop the market from reaching equilibrium

However, I would just like to float the idea that there is a possibility that alcohol too could be a giffen good. It is possible that even with a tax levied on it, alcohol still represents a small proportion of people’s income. To add to this, the private benefits of consuming alcohol in certain societies may be so high (in England it is simply part of the culture that you go “down the pub with ‘yer mates”) that an increase in price does not serve as enough of a disincentive to outweigh those private benefits.

In light of Wilhelm’s evidence, I can only propose that the tax be made so high that alcohol becomes a luxury good. However, for any government taking this measure there would undoubtedly be severe political repurcussions (especially in England).

I disagree with Joel’s point of taxation on alcohol from first hand experience; Finland implemented a very high tax on not only stronger liquors, but also beer. A poll the following year examining the reduction in alcohol consumption was quite shocking; it had not reduced the amount of alcohol people were drinking by more than a percent or two. Last year, the government reduced the taxation on alcohol again, as the population had gone from purchasing their alcohol from a store to importing it from, for example, Estonia. This meant that their revenue from alcohol had not increased. These two factors combine to show that increasing taxation was truly the opposite of what you stated, as it was ineffective.

Sean’s idea of localizing the damages on the other hand, would work better to reduce the social cost, but not by much. While the tourists would now be isolated to certain locations, violence and such could still occur, but possibly to a smaller extent as they would not “waddle” through someone’s private property.

If you ask me, the best idea is an increase of the Police forces and have a review of the laws, or even have the government of these countries make new laws, in order to increase the severity of the punishments for all the crimes related to the behaviour that those tourists have shown. We can take England as an example.

The huge problems of Hooligans were solved in a similar way in England. By introducing Stewarts, by increasing the organization of police around stadiums, and by the introduction of new laws for those who did not behave on sundays.

Regulating spirits levels definatly wouldn’t work since as Joel said those people would simply drink more.

If instead a much more organized police force would be on the field, this would allow security to increase, and at the same time increase the states revenues thanks to the money payed in fines by those who still do not respect the law

This would allow local businesses to keep running smoothly (what would not accour if a high tax on alcohol would be put in place), and at the same time see an overall higher security, wellbeing for the locals, and for the other turists.

As for the regulation on spirit levels, I would have to argue that people would simply drink more, and while contributing to business, would still incurr the same social costs.

Like horia, I would say that over consumption of alcohol is an example of market failure, as the social costs associated with the consumption of alcohol are large, leading to tens of thousands of preventable deaths yearly and contributing significantly to health problems in chronic drinkers.

If tourist nations were serious about reducing alcohol consumption they would have several available options; negative advertising as mentioned in the article is one option, but a more effective option which was mentioned by Horia would probably be to introduce an indirect tax onto alcohol, raising the price significantly could make the cost of more than two or three drinks per night prohibitively expensive to most holiday goers, and noticeably lowering consumption as a result. Although raising the cost of alcohol could have a very negative effect on the tourism industry, it is likely that an important reason for traveling abroad for some tourists would be cheap alcohol and nightclubs. It is very possible that raising prices would dissuade tourists with less disposable income from traveling, and therefore substantially cutting down service industry profits during the vital tourist season. Even if the price of alcohol was increased it is likely that they would be driven down again as other tourist locations lowered prices in order to draw in customers. I believe the best options for controlling the problem would either be extensive negative advertising campaigns, or severe fines and penalties for those caught breaking laws while under the influence of alcohol, these could act to reduce the incidence of heavy drinking related issues by providing a disincentive to overindulge without causing a rise in alcohol prices and scaring away consumers as a result.

I would imagine that running a bar in a location like Greece would not be very expensive, and during tourist season bars, nightclubs and restaurants can be fully loaded with foreign customers and the potential for massive profits are high. Although, however cheap it may be to run a bar in Greece, the additional social costs not covered by the bars expenses can be very high. Accidents, arrests, damage to property etc. is common in such areas, causing a disproportionate amount of tax money to be spent in areas that deal with tourists, as police and ambulance squads must be ready for potential mishaps, as horia insightfully mentioned the presence of police officers may be extremely imbalanced. Local residents of the areas swamped by tourists for several months a year may be irritated by their presence, small local businesses could be driven out by the arrival of more popular big chain establishments, turning once diverse areas into homogenized tourist-y resorts and perhaps casting out tradition and culture in the process.

One economic action which the government could take would be to levy a high tax on alcohol, directly proportional to the externality or the social cost. This would provide a financial disincentive for the consumption of alcohol. If we were to argue that alcohol is price inelastic, the burden of the tax should lie principally on the consumer, in this case young British partygoers. As opposed to legislation, this measure would be fully enforcible. However, to evaluate this measure in greater depth, if the tax would indeed be effective and would successfully decrease demand, then local business could suffer. Lower demand for alcohol would mean less revenue.

However, in my view, this measure would fully justified in relation to question 3. Tourist businesses are profiting at the expense of the taxpayer, and the private cost of running these does not reflect the sometimes horrific social costs. For instance, the government has to pay for advertising campaigns to lower demand, and for healthcare (which is “free” in Spain, and state sponsored) whose resources are taken up by drunken Brits. A tax would provide the government with extra revenue, compensating the budget for the expenses incurred by inhebriated Brits. As for the businesses who would be hit by the tax, their private costs would merely reflect the social cost. Consumers would buy less alcohol, and therefore the existence of the negative externality ie. the drunkenness would decrease.

Bottom line: Alcohol is too cheap. Brits are getting too drunk. Tax it.