Price Floors and Externality Correction*

Abstract We evaluate the impact of a price floor for alcohol introduced in Scotland 2018, using difference-in-differences strategy with England as control group. show that policy led to largest reductions units purchased among heaviest drinkers—the group who, at margin, are likely create externalities from drinking. The is well targeted heavy drinkers because they buy much greater fraction their cheap products and switched away these strongly, only limited substitution towards more expensive products. if marginal external cost drinking least moderately higher than lighter drinkers, then outperforms an ethanol tax. However, flexible tax systems can achieve similar floor, but avoid large transfers public funds industry arise under floor.