The Effect of Prices on Nutrition: Comparing the Impact of Product- and Nutrient-Specific Taxes

60 Pages Posted: 4 Jan 2014  

Matthew C. Harding

Stanford University - Department of Economics

Michael Lovenheim

Cornell University - Department of Policy Analysis and Management; National Bureau of Economic Research (NBER)

Date Written: January 2014

Abstract

This paper provides an analysis of the role of prices in determining food purchases and nutrition using very detailed transaction-level observations for a large, nationally-representative sample of US consumers over the period 2002-2007. Using product- specific nutritional information, we develop a new method of partitioning the product space into relevant nutritional clusters that define a set of nutritionally-bundled goods, which parsimoniously characterize consumer choice sets. We then estimate a large utility-derived demand system over this joint product-nutrient space that allows us to calculate price and expenditure elasticities. Using our structural demand estimates, we simulate the role of product taxes on soda, sugar-sweetened beverages, packaged meals, and snacks, and nutrient taxes on fat, salt, and sugar. We find that a 20% nutrient tax has a significantly larger impact on nutrition than an equivalent product tax, due to the fact that these are broader-based taxes. However, the costs of these taxes in terms of consumer utility are not higher. A sugar tax in particular is a powerful tool to induce healthier nutritive bundles among consumers.

Suggested Citation

Harding, Matthew C. and Lovenheim, Michael, The Effect of Prices on Nutrition: Comparing the Impact of Product- and Nutrient-Specific Taxes (January 2014). NBER Working Paper No. w19781. Available at SSRN: https://ssrn.com/abstract=2374556

Matthew C. Harding (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
650-723-4116 (Phone)

Michael Lovenheim

Cornell University - Department of Policy Analysis and Management ( email )

Ithaca, NY
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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