The 'Soda Tax' is Unlikely to Make Mexicans Lighter: New Evidence on Biases in Elasticities of Demand for Soda

44 Pages Posted: 22 May 2017

See all articles by Mabel Andalon

Mabel Andalon

University of Melbourne

John Gibson

University of Waikato; Motu Economic and Public Policy Research

Abstract

Mexico's 'soda tax' has been predicted to reduce average weights by two to four pounds, based on extant estimates of an own-price elasticity of quantity demand for soda of between −1.0 and −1.3. These estimates ignore consumer responses on the quality margin and correlated measurement errors. We use Mexican household budget survey data and city-level soda prices to estimate unrestricted demand models that correct for both errors. The corrected own-price elasticity of quantity demand is just −0.2 to −0.3, so tax-induced soda price increases might cut average weights by less than one pound, which is too small to improve health.

Keywords: demand, household surveys, quality, price, soda taxes, Mexico

JEL Classification: D12, I10

Suggested Citation

Andalon, Mabel and Gibson, John, The 'Soda Tax' is Unlikely to Make Mexicans Lighter: New Evidence on Biases in Elasticities of Demand for Soda. IZA Discussion Paper No. 10765. Available at SSRN: https://ssrn.com/abstract=2971381

Mabel Andalon (Contact Author)

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

John Gibson

University of Waikato ( email )

Te Raupapa
Private Bag 3105
Hamilton, 3240
New Zealand

Motu Economic and Public Policy Research

19 Milne Terrace
Island Bay
Wellington, 6002
New Zealand

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