How Fat Taxes Affect the Rich and the Poor

I'm pleased that the Economic Journal has decided to publish the paper Distributional Impacts of Fat Taxes and Thin Subsidies I wrote with  Laurent Muller, Anne Lacroix, and Bernard Ruffieux of the University of Grenoble and the French National Institute for Agricultural Research.  

Here is an excerpt

“How do the price policies differentially affect women at different points in the income distribution? Beliefs about the relative effects of fat taxes and thin subsidies on the poor relative to the non-poor are often premised on two assumptions. First is the assumption that the poor consume less healthful diets than the non-poor, perhaps due to the higher costs of more healthy diets (e.g., Drewnowski and Specter, 2004). The second assumption is that price policies are more likely to benefit low income consumers because low income consumers have more room for improvement, and because of their financial situation, they are likely to be more responsive to price changes. In short, a common view is that price policies can help the poor “catch up” to the non-poor in terms of the healthfulness of their diets.

Our experimental results confirm the first assumption: poor women tended to purchase less healthy food than the non-poor women. The implication is that, holding initial consumption patterns constant, policies which tax unhealthy food and subsidise healthy food will be regressive, favouring the non-poor more than the poor. But, people can change consumption patterns in response to price policies. If the poor are more responsive to price policies than are the non-poor, then inequalities will be dampened. This hypothesis, however, was rejected. Behavioural adjustments to the price policies amplified rather than dampened the divergent fiscal impacts of the price policies.”

In short:

“The tax/subsidy policies serve to widen the gap between the poor and non-poor, increasing the inequality in health and fiscal outcomes. Fat taxes cause the poor to pay disproportionally more for food than the non-poor and thin subsidies primarily flow to the non-poor. These effects occur because the non-poor already consume healthier diets but also because the non-poor are more price responsive than the poor”

Our approach to addressing this issue is quite different than that of previous studies.  Here's what's unique about our appoarch

“The advantage of the experimental set-up is that people’s choice behaviours are directly observed (rather than inferred as in a simulation study). In addition, the setting does not require the use of econometric models to infer behavioural responses. There is no need to assume a functional form or structure for responses; each individual can respond in their own unique way according to their own preferences. The experiment attempts to measure the overall fiscal effect (based on a day’s food choices) rather than simply focusing on one or two foods or a few food product categories. The experiment environment also allows us to study larger price variations (+/- 30%) than would likely have been feasible outside the lab, and as such, makes the price changes particularly salient.”

Here is one of the key figures from the paper.  The figure shows the distribution of price indices (i.e., the relative change in prices paid) after the introduction of a combined unhealthy-food-tax and healthy-food-subsidy policy for low income women as compared to a reference group (i.e, "normal" income women).

The Laspeyres index calculates the change in prices paid relative to the initial pattern of consumption; the Paasche index is similar except that it weights prices paid using the new pattern of consumption.  A greater difference between the two indices reveals greater substitution and responsiveness to the policy.

The figure above shows that 25-30% of  the low income consumers paid more for food after the price policy (they had an index greater than 100), and given the similarity of the two red lines, were less responsive (perhaps because of being more habit prone) than the richer consumers.  Moreover, at the individual level, the Paasche index was higher than the Laspeyres index for 35.9% of low income individuals.  These individuals did not shift their diet in the intended direction.

We ended the paper as follows:

“Whatever health benefits these policies might create, this paper suggests they need to be weighed against the adverse monetary effects they have on some of the poorest people in society.”

French sterotypes busted

This new paper in the American Journal of Agricultural Economics (coauthored by French and American agricultural economists)  is likely to bust a few sterotypes many Americans have about French eating patterns.  The abstract starts by tackling the first sterotype: that if we Americans would all just eat like the French, we'd be thin and healthy.

“Limited access to healthy food is commonly regarded as a contributing factor to poor dietary choices. The objective of this article is to test this hypothesis in a French context given France’s increasing obesity rates and incidence of poor dietary habits.”

Poor dietary habits among the French? Surely not!  Joking aside, i tis true that French obesity rates are below that in the US, but the trends are similar.  Actually, in the US, the upward trend has leveled off.  But the fact remains, there isn't that much difference between what French and American consumers like to eat.

Secondly, the French must be better eaters because of their frequent trips to all those quaint shops and farmers markets - right?  The paper:   

“our results, which indicate that fewer but larger retail outlets increase the odds of consuming the recommended level of fruit and vegetables.”

So, it seems that that Frechmen and Frenchwomen who eat recommended levels of fruits and vegetables are more likely to do so by getting them in large retail outlets like supermarkets.  

All in all, I think many Americans conflate the images they see on vacations to touristy spots in Paris or Nice for what is typical of everyday living in France.  But, even when I vacation within the US, I tend to eat and shop much differently than I do when living "regularly" back home.  That's why its important to augment our anecdote experiences with data.  

Obesity policy

“This commentary argues that lack of knowledge in both the scientific community and popular press regarding possible solutions carries over to public health advocates engaged in proposing government policies attempting to lower population weight. Market-based solutions are argued to be imperfect, but continued experimentation and scrutiny from paying customers interested in weight loss ensures progress toward developing effective solutions.”

That's from Michael Marlow in the Journal of American Physicians and Surgeons

TSE Economist weighs in on nutrient taxes

In the most recent issue of the Toulouse School of Economics (TSE) Magazine (pg 8) features some work by Vincent Requillart and Celine Bonnet on ability of nutrient taxes (like soda taxes) to fight obesity. 

Soda and sugar taxes don't always have the anticipated effect:

“The fact that we take into account the way the industry and retailers react via their pricing decisions. Most research assumes that the tax is passed on to the consumer. There’s no reason that should be the case! Firms are not passive, they develop strategies. They can raise prices more than is strictly necessary to cover the tax or, on the contrary, reduce their profit margins so as to maintain their sales.”

The point out that the effects of a sugared-soda tax are small, and that the actual policy passed in France (taxing all sweetened drinks - even those with artificial sweeteners) would not be expected to reduce weight.

“Taxing all drinks, be they sugar-sweetened or light, is counter to health recommendations. In practical terms, the tax implemented does not reach its goal of reducing sugar consumption. It acts primarily as an instrument to increase the State’s budget revenue.”

They seem to favor voluntary arrangements between food companies and the government to reduce sugar and salt content.  Even still, in places like the UK, where such an approach has been taken, the effect appears to be virtually nil.

“Having said that, despite all the measures implemented, obesity has not been eliminated. ”

One of the challenges is the complexity of it all

“ In the case of food, defining what is good and what is bad when dealing with a large number of nutrients, is complex.What’s more, eating habits change very slowly.”

For a more in depth and academic treatment of the topic, you might check out some of the published work by these authors.

New Dietary Guidelines

The federal committee that makes dietary guidelines and recommendations has just released their newest report.  As expected, they've incorporated "sustainability" objectives and have recommended a move away from meat eating.  I've previously commented on the the problem with a single committee making both nutritional and sustainability recommendations, and I had a piece in the Wall Street Journal on environmental impacts of meat production.   Now we can take a look at what's actually been proposed.

Here's one tidbit from a Washington Post summary on the issue.

““We’re not saying that people need to become vegans,” said Miriam Nelson, a professor at Tufts University and one of the committee’s members. “But we are saying that people need to eat less meat.”

The panel’s findings, which were released to the public in the form on a 572 page report this afternoon, specifically recommend that Americans be kinder to the environment by eating more plant-based foods and fewer animal-based foods. The panel is confident that the country can align both health goals and environmental aims, but warns that the U.S. diet, as currently constructed, could improve.”

Other conservative news sources point to some pretty heavy handed portions of the report.  The Dietary Guidelines Advisory Committee (DGAC):  

“called for diet and weight management interventions by “trained interventionists” in healthcare settings, community locations, and worksites.”

"Interventionists" is the right word here, but rarely are interventionists so forthcoming in their intentions.They also want to tax foods, limit speech, and monitor TV use.   

“DGAC also called for policy interventions to “reduce unhealthy options,” limit access to high calorie foods in public buildings, “limit the exposure” of advertisements for junk food, a soda tax, and taxing high sugar and salt items and dessert.

“Align nutritional and agricultural policies with Dietary Guidelines recommendations and make broad policy changes to transform the food system so as to promote population health, including the use of economic and taxing policies to encourage the production and consumption of healthy foods and to reduce unhealthy foods,” its report read.

“For example, earmark tax revenues from sugar-sweetened beverages, snack foods and desserts high in calories, added sugars, or sodium, and other less healthy foods for nutrition education initiatives and obesity prevention programs.”

The amount of sedentary time Americans spend in front of computers and TV sets is also a concern to the federal panel.”

If you think this is a one-off isolated example, you haven't been paying attention.