Fiscal-Food Policies are Likely Misinformed by Biased Price Elasticities from Household Surveys: Evidence from Melanesia

Asia & the Pacific Policy Studies, Vol. 4, No. 3, pp. 405–416, 2017

Crawford School Research Paper

12 Pages Posted: 25 Oct 2017

See all articles by John Gibson

John Gibson

University of Waikato; Motu Economic and Public Policy Research

Alessandro Romeo

United Nations - Food and Agriculture Organization (FAO)

Date Written: August 8, 2017

Abstract

Fiscal-food policies use taxes to alter relative food prices so as to change diets and are suggested for reducing non-communicable diseases in the Pacific. Price elasticity estimates used by advocates of fiscal-food policies are often biased and may make policy makers too optimistic about small taxes on unhealthy food and drink inducing big changes in diets. The bias is illustrated using the example of the demand for soft drinks in a household survey from the Solomon Islands, with further evidence from Papua New Guinea. About one-third of consumer response to soft drink price variation in the Solomon Islands is on the quantity margin, with two-thirds on the quality margin. If the quality response is wrongly treated as a quantity response to price—as in most studies—the price elasticity of soft drink demand is exaggerated by a factor of two in Papua New Guinea and three in the Solomon Islands.

Keywords: demand, household survey, quality, soft drink taxes, Melanesia

Suggested Citation

Gibson, John and Romeo, Alessandro, Fiscal-Food Policies are Likely Misinformed by Biased Price Elasticities from Household Surveys: Evidence from Melanesia (August 8, 2017). Asia & the Pacific Policy Studies, Vol. 4, No. 3, pp. 405–416, 2017, Crawford School Research Paper, Available at SSRN: https://ssrn.com/abstract=3058501

John Gibson (Contact Author)

University of Waikato ( email )

Te Raupapa
Private Bag 3105
Hamilton, Waikato 3240
New Zealand

Motu Economic and Public Policy Research

19 Milne Terrace
Island Bay
Wellington, 6002
New Zealand

Alessandro Romeo

United Nations - Food and Agriculture Organization (FAO) ( email )

Viale delle Terme di Caracalla
Rome, Lazio 00153
Italy

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