Should We Tax Sugar-Sweetened Beverages? An Overview of Theory and Evidence

27 Pages Posted: 22 May 2019 Last revised: 10 Feb 2021

See all articles by Hunt Allcott

Hunt Allcott

New York University (NYU)

Benjamin B Lockwood

University of Pennsylvania - The Wharton School

Dmitry Taubinsky

University of California, Berkeley - Department of Economics

Date Written: May 2019

Abstract

Taxes on sugar-sweetened beverages are growing in popularity and have generated an active public debate. Are they a good idea? If so, how high should they be? Are such taxes regressive? People in the U.S. and some other countries consume remarkable quantities of sugar-sweetened beverages, and the evidence suggests that this generates significant health costs. Building on recent work by Allcott, Lockwood, and Taubinsky (Forthcoming) and others, we review the basic economic principles that determine the socially optimal SSB tax. The optimal tax depends on (1) externalities: uninternalized health system costs from diseases caused by sugary drink consumption; (2) internalities: costs consumers impose on themselves by consuming too many sugary drinks due to poor nutrition knowledge or lack of self-control; and (3) regressivity: how much the financial burden and the internality benefits from the tax fall on the poor. We summarize the empirical evidence about the key parameters affect how large the tax should be. In the theoretical framework of Allcott, Lockwood, and Taubinsky (Forthcoming), our calculations imply that sugar-sweetened beverage taxes are welfare enhancing, and indeed that the optimal nationwide SSB tax rate may be higher than the one cent per ounce rate most commonly used in U.S. cities. Using our theoretical framework, we end by deriving seven concrete implications for optimal SSB tax structure.

Suggested Citation

Allcott, Hunt and Lockwood, Benjamin B and Taubinsky, Dmitry, Should We Tax Sugar-Sweetened Beverages? An Overview of Theory and Evidence (May 2019). NBER Working Paper No. w25842, Available at SSRN: https://ssrn.com/abstract=3390990

Hunt Allcott (Contact Author)

New York University (NYU) ( email )

Bobst Library, E-resource Acquisitions
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New York, NY 10003-711
United States

Benjamin B Lockwood

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Dmitry Taubinsky

University of California, Berkeley - Department of Economics ( email )

579 Evans Hall
Berkeley, CA 94709
United States

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