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

51 Pages Posted: 27 Dec 2018 Last revised: 25 Jun 2019

See all articles by Stephan Seiler

Stephan Seiler

Stanford Graduate School of Business

Anna Tuchman

Northwestern - Kellogg

Song Yao

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

Date Written: June 24, 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 offsets 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 do not detect a significant reduction in calorie and sugar intake. 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 (June 24, 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

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
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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