Predicting the Effects of Sugar‐Sweetened Beverage Taxes on Food and Beverage Demand in a Large Demand System

Abstract

A censored Exact Affine Stone Index incomplete demand system is estimated for 23 packaged foods and beverages and a numéraire good. Instrumental variables are used to control for endogenous prices. A half-cent per ounce increase in sugar-sweetened beverage prices is predicted to reduce total calories from the 23 foods and beverages but increase sodium and fat intakes as a result of product substitution. The predicted decline in calories is larger for low-income households than for high-income households, although welfare loss is also higher for low-income households. Neglecting price endogeneity or estimating a conditional demand model significantly overestimates the calorie reduction.

Measuring Consumer Responses to a Bottled Water Tax Policy

“…These studies generally find no significant effects, possibly due to the low salience of sales taxes relative to excise taxes (Fletcher, Frisvold, and Tefft., 2015;Fletcher, Frisvold, and Tefft., 2010;Sturm et al, 2010;Powell, Chriqui, and Chaloupka 2009). While numerous studies estimate how a beverage tax 5 would affect consumer demand (e.g., Zhen et al, 2014), our work is relatively rare in that we exploit both cross-sectional and temporal variation in tax rates rather than merely price variation in order to identify an effect. This makes our findings more reliable and realistic than previous estimates.…”

The Role of Fiscal Policies in Health Promotion

“…For instance, two different UKbased studies showed that taxing exclusively the principal sources of dietary saturated fat may not improve health, as the benefits may be offset by an increase in salt consumption in the presence of substitute foods (Nnoaham et al, 2009;Mytton et al, 2007). Similarly, a study of the effects of taxes on SSBs predicted a potential increases in sodium and fat intake (Zhen et al, 2013).…”

“…However, a study of people aged over 50 in the United States concluded that only modest changes in body weight can be expected in the short term, while a permanent reduction in price per calorie of 10% would generate a 1.9 body mass index reduction in the long term (Goldman et al, 2009). A further US study produced estimates of the impact on people's weight of a 0.5 to 1 cent per ounce tax on SSBs, using different demand models (Finkelstein et al, 2013;Zhen et al, 2013). The weight reduction was modest as an individual average (well below 1 kg, after one year), but this would likely translate into a non-negligible reduction in the proportion of people who are overweight or obese in the population.…”

“…In the United States, a 10% fat tax on dairy products would weigh 10 times as much on households with an income of $20,000, than on those with an income of $100,000 (0.24% vs. 0.024%) (Chouinard et al, 2007). A 0.5 cent per ounce tax on SSBs in the United States would mean tax payments of 19 and 23 USD per year, respectively, for households with incomes above and below 185% of the 2006 federal poverty line, respectively (Zhen et al, 2013), with a tax burden, measured as a proportion of income, several times larger for low income households, which amounts to an extra $4 in absolute terms.…”

“…With any of the types of taxation considered in the study, the size of the welfare loss was significantly smaller than the reductions in public health care expenditure produced by the taxes, leading, for instance, to a net social gain of $10 per adult with a 1.65 US cent tax per 1,000 calories. Zhen et al (2013) estimated that a 0.5 US cent per ounce increase in SSB prices would generate a welfare loss of about 27 USD per low-income household and 22 USD per high-income household per year, due to a larger consumption by the former, which may reinforce the regressive nature of taxes on SSBs.…”