The Impact of Soda Taxes: Pass-Through, Tax Avoidance, and Nutritional Effects

71 Pages Posted: 27 Dec 2018 Last revised: 11 Jun 2020

See all articles by Stephan Seiler

Stephan Seiler

Imperial College Business School

Anna Tuchman

Northwestern - Kellogg

Song Yao

Washington University in St. Louis - John M. Olin Business School

Date Written: June 9, 2020

Abstract

We analyze the impact of a tax on sweetened beverages using a unique dataset of prices, quantities sold, and nutritional information across several thousand taxed and untaxed beverages for a large set of stores in Philadelphia and its surrounding area. We find the tax is passed through at an average rate of 97%, leading to a 34% price increase. Demand in the taxed area decreases by 46% in response to the tax. A large amount of cross-shopping to stores outside of Philadelphia offsets more than half of the reduction in sales in the city and decreases the net reduction in sales of taxed beverages to only 22%. We find no significant substitution to bottled water and modest substitution to untaxed natural juices. We show that tax avoidance through cross-shopping severely constrains revenue generation and nutritional improvement, thus making geographic coverage an important policy decision.

Keywords: Sin Taxes, Pass-Through, Tax Avoidance, Policy Evaluation, Tax Design

JEL Classification: D04, D12, I18

Suggested Citation

Seiler, Stephan and Tuchman, Anna and Yao, Song, The Impact of Soda Taxes: Pass-Through, Tax Avoidance, and Nutritional Effects (June 9, 2020). Stanford University Graduate School of Business Research Paper No. 19-12. Available at SSRN: https://ssrn.com/abstract=3302335 or http://dx.doi.org/10.2139/ssrn.3302335

Stephan Seiler

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Anna Tuchman

Northwestern - Kellogg ( email )

Kellogg School of Management
2001 Sheridan Rd.
Evanston, IL 60208
United States

Song Yao (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

HOME PAGE: http://www.songyao.org

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