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
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
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