Taxes on sugar sweetened beverages (SSBs) -so called 'soda taxes' are currently receiving considerable attention as a potentially very effective policy intervention in the fight against rising obesity rates all-over the world. By increasing the price of sugar sweetened beverages, taxes promise to reduce sugar intake and subsequently bodyweight of individuals. However, there are concerns that such taxes are regressive, i.e. burden lower income groups more. This paper explores this issue by estimating the impact of SSB taxes on consumption, bodyweight and tax burden for low, middle, and high-income groups using an Almost Ideal Demand System and 2011 Household level panel data. A significant contribution of our paper is that we compare two types of SSB taxes recently advocated by policy makers: A 20% flat rate sales (valoric) tax, and a 20 cent per litre volumetric tax. Censored demand (which arises when households do not consume certain beverages at all) is accounted for using a two-step procedure. We find that the volumetric tax would result in a greater yearly per capita weight loss than the valoric tax (0.9kg vs 0.4 kg). The difference between the change in weight is substantial for the target group of heavy purchasers of SSBs in low-income households, with a weight reduction of 4.4 kg for the volumetric, and 2.3 kg for the valoric tax. The average per capita tax burden on low-income households is $17.90 per capita per year (0.21% of income) compared to $15.20 for high-income households (0.064% of income) for the valoric tax, and $13.80 (0.15%) and $10.10 (0.04%) for the volumetric tax. In summary, the tax burden is lower and weight reduction is considerably higher under a volumetric tax. These findings have significant policy implications for obesity reduction strategies.

No abstract

This study compares the impact of sugar-sweetened beverages (SSBs) tax between moderate and high consumers in Australia. The key methodological contribution is that price response heterogeneity is identified while controlling for censoring of consumption at zero and endogeneity of expenditure by using a finite mixture instrumental variable Tobit model. The SSB price elasticity estimates show a decreasing trend across increasing consumption quantiles, from -2.3 at the median to -0.2 at the 95th quantile. Although high consumers of SSBs have a less elastic demand for SSBs, their very high consumption levels imply that a tax would achieve higher reduction in consumption and higher health gains. Our results also suggest that an SSB tax would represent a small fiscal burden for consumers whatever their pre-policy level of consumption, and that an excise tax should be preferred to an ad valorem tax.

There is a need for further research focusing on the substitution effects of taxation and pricing policies, estimation of the true tax pass-through rates, and empirical analysis of the supply-side response (from alcohol producers and retailers) to various alcohol pricing strategies.