Are Sugar-Sweetened Beverage Taxes a Cost-Effective Means of Reducing Weight?

That was the title of a short paper I just published (ungated version) in the Canadian Journal of Diabetes.  The piece was written in response to a prior article by Buhler et al. arguing that a consensus had been reached on the need for soda taxes.  I pointed out that their consensus didn't include any economists.

 A few snippets:

More fundamentally, one must ask what conceptual basis is being used to assert that SSB taxes will increase consumers' welfare? Presumably, some consumers already consider health impacts when they choose what to eat and drink. More generally, taxing food or SSBs is analogous to reducing consumers' real income, which almost certainly harms the consumers (9 ). . .If the argument is that people do not understand the risks of SSBs, then the appropriate policy response is information provision, not a tax.

and

One of the most common assertions is that SSB taxes are required because one individual's choices impose costs on others because of the existence of public healthcare programs. However, forgotten in such claims is the fact that many of the obesity-related costs are private, not public (12). Moreover, the costs to the public health programs are actually transfers among people in an insurance pool, not an economic deadweight loss to society that reduces Pareto efficiency (12). 

In conclusion:

In sum, Buhler et al (1) are correct that obesity is a complicated and multifaceted issue. So too are the consumption, weight and economic-welfare effects of SSB taxes. SSB taxes often appear to be a simple (if partial) solution for a big problem but, as witnessed by Denmark's recent decision to rescind its versions of the “fat tax,” the consequences and impacts of such taxes are anything but simple.

Fat Taxes

Two recent students on "fat taxes" have emerged in the economics sphere.

Here is the abstract of a paper by Chen Zen and colleagues in the American Journal of Agricultural Economics

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.

Here is an exerpt of an NBER working paper by Harding and Lovenheim

Our main finding is that nutrient-specific taxes have much larger effects on nutrition than do the product-specific taxes we study. However, they do not cost more in terms of consumer utility. While a 20% soda tax reduces sugar purchases by 10.35%, it only reduces overall caloric intake by 4.84%. Taxing packaged meals actually increases slightly overall caloric intake, even though this product group is the unhealthiest per serving. Taxing snacks/candy also has at most small impacts on the purchased nutritive bundle.

In contrast, taxing nutrients has large impacts on nutrition without producing larger welfare losses than product-specific taxes, largely because of the broad-based nature of these taxes. Among the three nutrient-specific taxes, sugar taxes stand out as particularly effective. A 20% sugar tax reduces sugar consumption by 16.41% while also reducing caloric intake by 18.54% and salt consumption by 9.63%. Consumer indirect utility declines by 2.6% as a result, which is very similar to the utility cost of a soda tax and SSB tax.

Two points.

First, both these studies show certain kinds of taxes can have some effect on intake (although often in less than anticipated ways). However, even the most effective taxes (in both studies) causes consumer welfare to fall - although these are rarely discussed in dollar terms.

Second, we already have something akin to a sugar tax - farm policies that include production allotments, quotas, and trade restrictions which make sugar 2 to 3 times more expensive in the US compared to the rest of the world. Of course, we also subsidize corn, which makes HFCS relatively less expensive. Here is a nice paper by John Beghin and Helen Jensen on some of the economics of sugar policies.

Mexico Passes Soda Tax

Friday the Mexican congress passed a nationwide soda and "junk food" tax.  

l've written so much on these sorts of taxes, it is hard to know what more can be said.  I suppose the best, succinct thing I can say is what I sent in a letter to the New York Times, in response to a previous story they ran about the issue:

Writing about a proposed 7.7 cent per liter soda tax in Mexico, Elisabeth Malkin cites a Mexican corner store vendor who doubts the tax will make a dent in sales.  The economic research concurs with this assessment.  Study after study has shown that soda taxes of this magnitude will have trivial effects on weight, and yet will raise revenue from many consumers who can least afford to pay.  For example, my co-authored study in the Journal of Health Economics estimates that a 10% tax on sugar-sweetened soft drinks would reduce weight by only about two tenths of a pound.  Another study from Cornell University has even found evidence of adverse unintended effects from soda taxes that arise from increased consumption of higher calorie juices or alcohol.  Denmark recently repealed their fat tax for precisely these reasons: complications arising from unintended consequences and consumer backlash. We all want people to lead healthy, fulfilling lives but we must also marry these concerns with the evidence on whether the policies being pursued will actually create the benefits we desire.

This comes on the heels of another "simulation" study was released, this one in the journal BMJ, which concludes:

A 20% tax on sugar sweetened drinks would lead to a reduction in the prevalence of obesity in the UK of 1.3% (around 180 000 people). . . . Taxation of sugar sweetened drinks is a promising population measure to target population obesity, particularly among younger adults.

I suppose the good thing about the Mexican developments is that we can finally put to test the predictions of some of these simulation models.  

What Explains the Difference in the Way Americans and French (and Brits) Eat?

I ran across this fascinating paper entitled "Do Prices and Attributes Explain International Differences in Food Purchases" by Pierre Dubois, Rachel Griffith, and Aviv Nevo that is forthcoming in the American Economic Review (an earlier version of the paper is here; a gated forthcoming version can be found by searching here).

According to the paper, French consumers eat about 1777 calories every day.  Americans, by contrast, eat 2103 calories (UK falls in the middle at 1929).  The differences don't end there.  49% of our calories come from carbs; but for the French its only 38%.  A much larger share of French calories comes from fat than those of us in the US (46% vs. 37%).  When one digs a little deeper - it becomes clear why: The French eat more dairy and oils than Americans.

Now, here is the key question which Dubois and colleagues ask.  Why do people in the US, UK, and France eat so differently?   

The authors consider three possible explanations: 

1. differences in prices across countries,
2. differences in the food options available (and nutrient content of foods) across countries, or 
3. differences in what people like to eat across countries (i.e., differences in preferences).

Their data reveals a number of interesting findings.  For example, even though Americans eat more calories than the French, we spend less money doing so ($426/quarter vs. $466/quarter).  Part of the explanation is that food prices are generally higher in the France than the US, but interestingly, it isn't across the board in the ways one might expect.  Fruit and Veggie prices are similar in the US and France.  But, the prices for dairy, meats, oils, and prepared foods are 31%, 76%,  16%, and 18% lower in the US than France.  Interestingly, sweeteners and drinks are priced 39% and 43% higher in the US than in France.  So, one thing becomes apparent: the French are eating more dairy and oils than we are in spite spite of the higher prices.  They must either really like to eat those foods or there must be more of those kinds of foods in France to choose from (they also eat about the same amount of meat as we do - as a share of calories - despite meats being 76% more expensive it France).   

Ultimately,  Dubois and colleagues find that all the above factors matter.  The author's models predict that Americans consume an average of 2212 calories each day (slightly more than the "raw mean").  Then, the authors make some interesting projections.  They calculate that Americans would:

• eat 2158 calories if we were exposed to the same food options (or product attributes) as the French
• eat 1890 calories if we faced the same food prices as the French
• eat 1841 calories if we faced the same food options and prices as the French

The authors conclude:

The estimates allow us to simulate counterfactual quantities purchased by households with preferences from one country but facing prices and product attributes from another country. We use the simulations to learn about the relative importance of preferences versus the economic environment. We find that, the average US household when faced with French prices and product attributes, will purchase substantially fewer calories, bringing the level close to that of the average French household when faced with the same environment. However, the composition of these calories would differ. The simulated change is mostly due to price differences. In contrast, when we simulate the average US household’s food basket with UK product attributes this has a substantial impact on reducing calories, whereas changing relative prices in fact increases calories. From these findings we conclude that the economic environment makes a substantial difference on the consumption basket. However, in general, it is the interaction of preference, prices and attributes that explains the cross country differences.

I find these results interesting because there are many Americans who seems to subscribe to a view that the French have some kind of moral superiority when it comes to food and weight.  I read these results to say that the French are, in large part, just responding to the economic incentives they face.  And while they consume fewer calories than we do, it isn't all that clear they're better off given that they must pay more for many of the foods they desire than do Americans. 

I'm in Italy for the next two weeks. I wonder what I'll eat differently due to differences in food prices and availability?

Another study raises questions about sweetened beverage taxes

A small group of food and agricultural economists have been quietly releasing research that questions the argument that sweetened beverage taxes will have any meaningful impact on the rates of obesity.  First was a French study showing fat taxes to be quite regressive (i.e., the burden is most heavily paid by the poor) having very small effects on nutritional content.  Then was a UC Davis study showing that the only kind of tax to have much effect on weight would be an across-the-board food or calorie tax.  After that, I discussed a Cornell study showing that sweetened beverage taxes are likely to be far less effective than previously predicted if food taxes are only calculated at the register and not posted on the shelf (as is the case in virtually all US retail outlets).  I then talked about my own research on the issue, pointing out some weaknesses in much of the conceptual reasoning about fat taxes. 

Now, comes this paper just accepted for publication in the American Journal of Agricultural Economics.   The authors find: 

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 authors also showed that previous studies, which failed to account for the full substitution effects across foods (an issue we highlighted back in 2008 in this paper), would over-estimate the effectiveness of a sweetened beverage tax.  They also estimate that the consumer welfare losses that results from paying higher prices from a tax are higher among the poorer consumers than the richer consumers.  

Ultimately, the authors predict that a one-half cent tax per once of sweetened beverages would cause

reductions of 0.37 and 0.16 kg/person in 1 year

for low and high income consumers.