A matter of desing in Soda Taxes: Tax sugar instead of volume

42 Pages Posted: 9 Oct 2018 Last revised: 18 May 2020

See all articles by Felipe Lozano-Rojas

Felipe Lozano-Rojas

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA)

Date Written: September 4, 2018

Abstract

Soda taxes are meant to improve public health outcomes insofar as they curb consumption of sugary beverages and thus sugar intake. This research is the first to get closer to the aim of the policy by evaluating the effect of the soda tax introduced in Berkeley in 2015, focusing on its effect on sugar consumption. I conduct this analysis on a unique dataset that merges retailer point-of-sale (POS) data with matched Nutrition Facts information for sugar content. Due to the vast range of sugar densities across beverages, this setting provides information about how a tax levied at volume, rather than sugar content, affects demand for taxable items. I develop a theoretical model that accounts for how a tax such as the one in Berkeley, incentivizes consumers to substitute toward drinks with higher sugar concentration, as unitary sugar prices among taxed drinks are affected differently. I evaluate these hypotheses for Berkeley relative to comparable locations and assess the effects of soda taxes on consumption and price by volume and sugar content. I find that sugar intake fell as a response to the tax, but at a lower rate compared to volume consumption. Following the introduction of the tax, in other words, the unitary sugar price exhibited a lower impact in more concentrated sugar beverages. This indicates that the policy incentivized consumers to buy drinks with higher sugar concentrations among tax beverages and that a levy at the sugar content level would be more effective.

Keywords: Excise Taxation, Sales Taxes, Soda Taxes, Local Governments, Health Policy, Taxation and Inequality

JEL Classification: H21, H22, H23, H71, H75, I12, I14, I18

Suggested Citation

Lozano-Rojas, Felipe, A matter of desing in Soda Taxes: Tax sugar instead of volume (September 4, 2018). Available at SSRN: https://ssrn.com/abstract=3225901 or http://dx.doi.org/10.2139/ssrn.3225901

Felipe Lozano-Rojas (Contact Author)

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA) ( email )

1315 East Tenth Street
Bloomington, IN 47405
United States

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