Do Local Soda Taxes Affect Prices and Consumption? A Tale of Two Cities

38 Pages Posted: 24 Sep 2019

See all articles by Hannah Bolder

Hannah Bolder

University of Michigan at Ann Arbor - Department of Economics

Date Written: July 30, 2019

Abstract

Many US cities have voted on or are considering soda taxes due in part to the growing literature about soda's negative health effects. However less is known about supplier and consumer responses to such taxes, particularly when they are implemented at a local rather than national level. Responses to local taxes could differ due to general equilibrium effects and institutional factors. In addition, more opportunities for avoidance may generate unintended consequences that have important policy implications. Rather than aggregating to the city level, this study leverages the high-frequency and high dimensional aspects of the Nielsen scanner data to investigate how prices and consumption of various goods change in response to local soda taxes. Comparing the cases of Berkeley and Philadelphia highlights which findings are constant across these very different cities and are likely to generalize to other local soda taxes. The results indicate incomplete pass-through rates that decline with beverage container size and moderate decreases in consumption of both diet and regular soda. Supply and demand elasticities can be separately identified using the tax as an instrument.

Keywords: soda tax, pass-through, elasticity of demand, elasticity of supply, sin tax, policy evaluation

JEL Classification: H22, H71, I18, H75, D04, D12

Suggested Citation

Bolder, Hannah, Do Local Soda Taxes Affect Prices and Consumption? A Tale of Two Cities (July 30, 2019). Available at SSRN: https://ssrn.com/abstract=3456861 or http://dx.doi.org/10.2139/ssrn.3456861

Hannah Bolder (Contact Author)

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

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