A tasty morsel on fat taxes

By Bill Kaye-Blake 28/05/2013

Denmark placed the first-ever tax on saturated fat in 2011, and then abandoned it fifteen months later. It was supposed to be a real-world example of a ‘nudge’ — a little governmental push in the ‘right’ direction for all the fatty-fatty-two-by-fours healthy people struggling to emerge from their unhealthy bodies. Those ungrateful little sods actual consumers didn’t behave properly, so the policy failed.

The Institute of Economic Affairs has now published a paper by Christopher Snowdon on the whole affair, which makes for interesting (and lite!) reading.

While I appreciate his general approach — that such a tax is denying people the pleasures they want — I will take issue with a couple of methodological points:

  • the section on revealed and stated preferences doesn’t quite get it right. It might be the slide between a textual analysis and an economic one. I think he’s right that the language is laden (dripping?) with subtexts and unspoken meanings — but isn’t all language? What he gets wrong economically, though, is the ‘true preferences’ versus ‘expressed preferences’ part. All preferences are expressed in a context. Changing the context or changing the preferences are two different ways to change the choice.
  • That leads to my second point, which is that ‘making health options cheaper/easier’ is a theoretically defensible way of promoting healthy food options. Whether you do it by subsidising the ‘good’ or taxing the ‘bad’ will have equity implications, but changing the price differential is key to changing the choice context in the face of unchanging preference orderings. Now, the elasticities of demand might not be in your favour, and implementation can be a nightmare, and the tail can be wagging the dog, and so on. But this statement is a bit simplistic:

Campaigners might talk about ‘making healthy choices easier’, but the most they can do is make ‘healthy choices’ more appealing in relative terms by making ‘unhealthy choices’ more expensive and therefore less appealing. Unfortunately, this does not make the‘healthy’ choices cheaper in real terms, nor does it make them any tastier.

Those points aside, the affair is a warning to those who would meddle with our food consumption in a mechanical way. It’s not as simple as you would like to believe.