Tax Analysis & Pigouvian Gap

Current Tax Structure¶

Beer Taxes in NYC (per 12 oz)¶

Excise Taxes:

• Federal: $0.05

• NY State: $0.013

• NYC: $0.011

• Total excise: $0.074

Sales Tax:

• NYC rate: 8.875%

• On $12.50 beer: $1.02

Total tax: $1.09/beer (8.7% of consumer price)

Revenue Flow¶

Consumer pays:              $12.50
├─ Sales tax (→ government): $1.02
├─ Excise tax (→ government): $0.074
└─ Net to stadium:           $11.41
   ├─ Production cost:       -$5.00
   ├─ Internalized costs:    -$0.04
   └─ Profit:                 $6.37/beer

Annual Tax Revenue (Current)¶

Per game (40,000 beers):

• Sales tax: $40,800

• Excise: $2,960

• Total: $43,760/game

Per season (81 games):

• $3.5M/season to government

External Costs Not Covered by Current Taxes¶

Crime Externalities: $2.50/beer¶

Based on Carpenter & Dobkin (2015):

• 10% alcohol ↑ → 1% assault ↑, 2.9% rape ↑

• Police, courts, incarceration costs

• Property damage, emergency services

• Concentrated around stadium on game days

Health Externalities: $1.50/beer¶

Based on Manning et al. (1991) (inflation-adjusted):

• Emergency room visits

• Trauma care (fights, accidents)

• Long-run health system burden

• Drunk driving crashes

• Lost productivity

Total External Cost: $4.00/beer¶

Pigouvian Tax Gap¶

External cost per beer:      $4.00
Current tax per beer:        $1.09
────────────────────────────────
Pigouvian gap:               $2.91

Coverage ratio:              27.3%
Undertaxed amount:           72.7%

Comparison to Other Goods¶

Stadium beer is significantly undertaxed relative to externalities.

Optimal Pigouvian Tax¶

Recommendation: +$2.91/beer¶

This would:

1. Internalize external costs (consumers face full social cost)

2. Reduce consumption to socially optimal level

3. Raise revenue for affected communities

4. Improve efficiency (no deadweight loss)

Revenue Projections¶

Per game:

• Current consumption: 40,000 beers

• After tax: ~28,500 beers (29% reduction)

• Revenue: 28,500 × $2.91 = $82,935/game

Per season:

• 81 home games

• Revenue: $11.0M/season

(Lower than naïve $9.4M due to demand reduction)

Where Should Revenue Go?¶

Affected parties:

1. Bronx community: Bears crime externalities

2. NYC public health: Emergency services, hospitals

3. NYPD: Policing costs on game days

4. MTA: Drunk passenger incidents

Allocation recommendation:

• 40% → Bronx community programs

• 30% → NYC public health

• 20% → NYPD overtime/resources

• 10% → MTA safety programs

Tax Incidence¶

Who actually bears the tax burden?

With beer demand elasticity ε = -0.29 (semi-log at $12.50):

Pass-through rate:

Effect of $2.91 tax:

• Consumer price increase: $2.91 × 0.78 = **$2.27**

• Stadium price decrease: $2.91 × 0.22 = **$0.64**

Result:

• Consumer pays: $12.50 +$2.27 = $14.77

• Stadium receives: $11.41 -$0.64 = $10.77

• Government receives: $2.91

Burden split: 78% consumers, 22% stadium

This is standard tax incidence: more inelastic side bears more burden.

Alternative Revenue Uses¶

Option 1: Reduce Other Taxes¶

Use $11.0M to reduce property taxes in the Bronx

Option 2: Public Safety¶

Increase police presence, security on game days

Option 3: Public Health¶

Alcohol treatment programs, ER capacity

Option 4: Return to Fans¶

Subsidize ticket prices or public transportation

Most efficient: Target spending toward externality reduction (safety, health).