Soda taxes revisited

By Eric Crampton 21/03/2014

Soda taxes don’t do much to affect obesity. A new paper by Fletcher et al in Health Economics looks at effects of American soda taxes across U.S. states. While ‘soda taxes’ aren’t common, differential sales taxes on soda aren’t uncommon; soda is often exempted from generalised food exemptions from state-level sales taxes. Consequently, soda can have an effective tax rate of up to 12% more than other foods and non-alcoholic beverages, though the average was much lower.

They find that sales taxes have no statistically significant relationship to soda calorie intake and may increase consumption of calories from non-soda beverages. In one specification, they find that a one percentage point increase in the soda tax increases total daily caloric intake by 27.7 calories; I rather suspect that they’re here picking up an endogeneity problem: governments will implement soda taxes when obesity is rising.

Supporters of soda taxes have suggested that tax hikes in the range experienced in the US will understate the potential effects of a much larger tax hike: if effects are non-linear, this is entirely possible. But Fletcher et al find zero evidence of non-linearities in tax effects within the range of US taxes. If there were some non-linearity, we’d expect there to be at least a little action in the quadratics and high-order polynomials; the linear specification fits best. But we can’t rule out non-linearities that only kick in well outside of sample.

They’d previously found strong evidence of substitution effects among children and adolescents: taxes on soft drinks reduced soda consumption but induced an entirely offsetting increase in calories from other non-soda drinks. And recall that Klick et al found that relative prices of healthy and unhealthy foods didn’t affect obesity either.

See also Paul Bedard at the Washington Examiner and Chris Snowdon.

0 Responses to “Soda taxes revisited”

  • Food labelling and food taxes expert Dr Mike Rayner (based at Nuffield Department of Population Health at the University of Oxford) makes the point that poorly designed food taxes could have unintended negative consequences. The paper by Fletcher et al. examines the effects of soda taxes per se, which appear to me to be an example of a poorly designed tax. The soda taxes they examined were applied (and modelled) to fizzy drink but other sugary drinks were exempted. Unintended effects include for example consumers switching to non-taxed drinks and beverage manufacturers developing and promoting non-soda beverages. Indeed the data presented suggested this occurred.

    I think such taxes need to be applied to all categories of sugar-sweetened beverages. Mike Rayner and colleagues predict using econometric models that a 20% tax on sugar drinks will reduce obesity by 1.4$ in the UK. This of course remains to be proven. It will be of great interest to follow the Mexican experience with it’s newly implemented 10% tax of sugar-sweetened beverages (not just soda).

    It is also worth considering that during the early 90’s (the period of time the Fletcher data covers) intakes of free or added sugars in the US were at an all time high with the low fat obsession driving the development of of a huge range of low fat but highly sweetened convenience foods and drinks. I’m no econometrician I wonder whether this could have confounded the analysis by Fletcher et al. Nevertheless this demonstrates the importance of developing multi-pronged, well thought out policies for addressing excess calorie consumption and population obesity. Focusing all our efforts on simple fiscal measures, in isolation, could be quite pointless.

    • Agree that if it’s going to be done, it has to be across-the-board rather than specified products. And not just beverages: every single thing with sugar as an ingredient or component as you could reasonably expect substitution between drinks and other products. I disagree that it should be done, but making it comprehensive at least means it’s not a dumb way of achieving an end with which I disagree.

      To be clear, I’d be meaning “tax on everything ending in -ose”, not just one form of sugar, if they were to go that way.

      I’d also start worrying about substitution then from sugars to complex carbohydrates that could be worse, or back into fats. Basically, we wind up with the whole Hayek problem revisited. We either tax none of the things differentially, or we figure out the whole set of tax and subsidies needed to induce people to make the decisions they would have made absent a public health system that allows them to externalise the costs of consumption decisions, or we risk making things worse in second-best partial-tax worlds.