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Real World and Model-Based Lessons from Beverage Tax Policy Designs Across the Globe

Paper Session

Sunday, Jan. 6, 2019 1:00 PM - 3:00 PM

Atlanta Marriott Marquis, International B
Hosted By: American Economic Association
  • Chair: Benjamin Lockwood, University of Pennsylvania

Soda Taxes: Evidence, Incidence, and Optimal Policy Design

Hunt Allcott
,
New York University
Benjamin Lockwood
,
University of Pennsylvania
Dmitry Taubinsky
,
University of California-Berkeley

Abstract

The task of this paper is to incorporate into a single, simple theoretical framework a diverse range of competing considerations which determine the optimal soda tax. These include: the supply and demand responses to the tax (and, by extension, the pass-through rate and economic incidence), the externalities and behavioral “internalities” from the tax, for example, from public spending on health conditions, and from behavioral biases like poor nutritional knowledge, or myopia with respect to distant health consequences. This framework is sufficiently general to accommodate a range of policy goals, including both corrective and redistributive aims, in keeping with existing results in the optimal taxation literature, while also capturing several potential unintended consequences, including cross-border shopping and regressive incidence on poor consumers. We then draw on evidence from across the literature to inform the values of these parameters. In particular, we focus on evidence from the public health and health economics literatures assessing the health consequences of sugary drink consumption. We use this simple framework and empirical evidence to distil four key lessons for policy makers about the design of taxes on sweetened beverages.

How well targeted are soda taxes?

Pierre Dubois
,
University of Toulouse-Capitole
Rachel Griffith
,
Institute for Fiscal Studies and University of Manchester
Martin O'Connell
,
Institute for Fiscal Studies

Abstract

Soda taxes aim to reduce excessive sugar consumption. Their effectiveness depends on whether they target individuals for whom the harm of consumption is largest. We study individual level purchases made on-the-go, which account for around half of sugar from soft drinks. We estimate demand and account for supply-side equilibrium pass-through. We exploit longitudinal data to estimate individual preferences, which allows flexible heterogeneity that we relate to key individual characteristics. We show that soda taxes are relatively effective at targeting young consumers but not individuals with high total dietary sugar; they impose the highest monetary cost on poorer individuals, but are unlikely to be strongly regressive especially if we account for averted future costs from over consumption.

The Impact of the French Soda Tax on Prices and Purchases: An Ex Post Evaluation

Sara Capacci
,
University of Bologna
Olivier Allais
,
National Institute of Agronomic Research (INRA)
Celine Bonnet
,
Toulouse School of Economics
Mario Mazzocchi
,
University of Bologna

Abstract

We estimate the price and consumption effects of the 2012 French tax on sweetened non-alcoholic drinks using a Difference-in-Difference approach. Our identification strategy rests on alternative counterfactual specifications: (1) using Italian data as a natural control group; (2) using data on mineral and spring water prices and purchases as the placebo good. We use French and Italian consumer price indices, purchase prices and quantities from the 2011 and 2012 EuroPanel home-scan surveys for two French regions and two neighboring Italian regions, and expenditure data from the 2011 and 2012 Italian Expenditure Survey. Our results suggest that the tax is transmitted to the prices of taxed drinks, with full transmission for soft drinks and partial transmission for fruit juices. The tax effects on purchased quantities are small (-2% for soft drinks), but they are larger when households in the top consumption quartile are considered (-10%).

Combined Fiscal Policies to Promote Healthier Purchases: Effects on Purchases and Consumer Welfare

Alejandrina Correa
,
University of Chile
Andres Silva
,
Central University of Chile
Shu Wen Ng
,
University of North Carolina-Chapel Hill
Juan Carlos Caro
,
University of North Carolina-Chapel Hill

Abstract

Taxes on junk foods and sweetened beverages as well as subsidies to healthy foods have become increasingly popular strategies to curb obesity. The existing evidence on the welfare effects of fiscal policies is mixed and almost uniquely focused on tax schemes. Using the 2016-2017 Household Budget Survey in Chile, we estimate an Exact Affine Stone Index (EASI) demand system and simulate changes in purchases, tax incidence and consumer welfare of three different policy scenarios: (1) An 18% tax on unhealthy food and sweetened beverages, (2) a subsidy defined as zero-rating fruits and vegetables from the current 19% value-added tax, and (3) a combined (tax and subsidy) policy. The combined scheme captures the incentives to switch purchases from both single-policy alternatives, creating almost no change in government revenue. In terms of welfare, low income households strictly benefit from a combined policy, while high income households experience a loss of consumer welfare, thus generating significant re-distributional effects.
Discussant(s)
Steve Sexton
,
Duke University
Justine Hastings
,
Brown University
David Frisvold
,
University of Iowa
Mario Mazzocchi
,
University of Bologna
JEL Classifications
  • I1 - Health
  • H2 - Taxation, Subsidies, and Revenue