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

53 Pages Posted: 27 Dec 2018 Last revised: 28 Oct 2019

See all articles by Stephan Seiler

Stephan Seiler

UCLA Anderson School of Management

Anna Tuchman

Northwestern - Kellogg

Song Yao

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

Date Written: October 26, 2019

Abstract

We analyze the impact of a tax on sweetened beverages, often referred to as a “soda tax,” 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. We find no significant substitution to bottled water and modest substitution to (untaxed) natural juices. A large amount of cross-shopping to stores outside of Philadelphia off-sets more than half of the reduction in sales in the city and reduces the net decrease in sales of taxed beverages to only 22%. Among taxed beverages, demand decreases more strongly for relatively healthier products. Due to cross-shopping and compositional changes in demand, we find that calories and sugars decrease by only 16% and 15% (p-values of 0.07 and 0.09). Based on these findings, we discuss implications for tax policy design.

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 (October 26, 2019). 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

UCLA Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095
United States

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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