The Impact of Soda Taxes: Pass-Through, Tax Avoidance, and Nutritional Effects
51 Pages Posted: 27 Dec 2018 Last revised: 25 Jun 2019
Date Written: June 24, 2019
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: Suggested Citation