The Welfare Effects of Health-Based Food Tax Policy

30 Pages Posted: 14 Nov 2011  

Kaisa Kotakorpi

University of Turku - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Tommi Härkänen

Government of the Republic of Finland - National Institute for Health and Welfare

Pirjo Pietinen

Government of the Republic of Finland - National Institute for Health and Welfare

Heli Reinivuo

affiliation not provided to SSRN

Ilpo Suoniemi

Labour Institute for Economic Research

Jukka Pirttila

United Nations - World Institute for Development Economics Research (UNU/WIDER); Tampere University of Technology

Date Written: November 14, 2011

Abstract

This paper examines the effects of health-oriented food tax reforms on the distribution of tax payments, food demand and health outcomes. Unlike earlier work, we also take into account the uncertainty related to both demand estimation and health estimates and report the confidence intervals for the overall health effects instead of only point estimates. A sugar tax of 1 € / kg reduces the incidence of type 2 diabetes on average by 13% and it also leads to a reduction in coronary heart disease. The health effects appear to be most pronounced for low-income individuals, and the reforms may therefore reduce health inequality. This effect undermines the traditional regressivity argument against the heavy taxation of unhealthy food.

Keywords: sin taxes, food taxation, tax incidence, commodity demand, obesity, diabetes, coronary heart disease, bootstrapping

JEL Classification: H200, I140, I180

Suggested Citation

Kotakorpi, Kaisa and Härkänen, Tommi and Pietinen, Pirjo and Reinivuo, Heli and Suoniemi, Ilpo and Pirttila, Jukka, The Welfare Effects of Health-Based Food Tax Policy (November 14, 2011). CESifo Working Paper Series No. 3633. Available at SSRN: https://ssrn.com/abstract=1959273

Kaisa Kotakorpi

University of Turku - Department of Economics ( email )

Turku
Finland

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Tommi Härkänen

Government of the Republic of Finland - National Institute for Health and Welfare

Helsinki
Finland

Pirjo Pietinen

Government of the Republic of Finland - National Institute for Health and Welfare

Helsinki
Finland

Heli Reinivuo

affiliation not provided to SSRN

Ilpo Suoniemi

Labour Institute for Economic Research ( email )

Jukka Pirttila (Contact Author)

United Nations - World Institute for Development Economics Research (UNU/WIDER) ( email )

Katajanokanlaituri 6B
Helsinki, FIN-00160
Finland

Tampere University of Technology ( email )

P.O. 541, Korkeakoulunkatu 8 (Festia building)
Tampere, FI-33101
Finland

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