The Impact of Soda Taxes: Pass-Through, Tax Avoidance, and Nutritional Effects
53 Pages Posted: 27 Dec 2018 Last revised: 28 Oct 2019
Date Written: October 26, 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 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: Suggested Citation