Taxing Volume, Targeting Sugar: The Impact of Sugar-Sweetened Beverage Excise Taxes on Outcomes Associated with Taxed and Untaxed Characteristics

Abstract

This paper studies how excise taxes affect outcomes related to both taxed characteristics of a product and associated, untaxed characteristics. The empirical analysis examines volumetric excise taxes on sugar-sweetened beverages (SSBs); while the tax is levied on volume, a primary objective of these taxes is to reduce sugar intake. Using national high-frequency retail scanner data and a staggered adoption synthetic difference-indifferences approach, we study the impacts of volumetric taxes across the US on prices and purchases of volume and sugar from SSBs. First, due to a linear tax and non-linear pricing in volume, we find volumetric taxes disproportionately increase the price of larger-volume products, increasing the average price per ounce by 4.4% for products in the smallest product size quartile and 24.6% in the largest quartile. Second, we show a specific excise tax generates an equivalent tax rate on taxed and untaxed characteristics within a product. Finally, volumetric taxes in the US led to (i) larger overall reductions in volume (-36.2%) compared to grams of sugar (-31.0%) purchased from SSBs, and (ii) smaller increases in the average price per ounce (26.5%) compared to the average price per gram of sugar (40.7%). We find the gap in relative reductions in volume versus sugar is plausibly driven by consumer substitution to products with higher sugar concentrations. The findings have important implications for specific excise tax structures, which should consider heterogeneity across products in both taxed and untaxed characteristics of interest.

Keywords: sugar-sweetened beverages, volume, sugar, synthetic difference-in-differences

JEL Classification: I12, I18, H30, Q18