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Monday, April 05, 2010

A matter of principle or a matter of degree?

This story from Health Affairs suggests that there is at least one sample of kids for which soda taxes didn't mean much for soda consumption and therefore had no impact on weight gain/loss:
The analysis could find no significant link between the consumption of soda or weight gain among children and differential taxes on sodas versus other foods. Existing differential taxes (taxes that are imposed on sodas and not other food items sold in grocery stores) are small, averaging 3.5 percent and none are larger than 7 percent.

I wonder if this is because the tax is borne (most often) by someone other than the child (that is, the child's price elasticity of demand is very small with respect to the tax because mom/dad/caretaker is paying for the soda) which means that the tax is a matter of degree - raise the tax enough and mom/dad/caretaker will get the message. Or is the failure of the tax a matter of principle - what I mean by that is that the price elasticity of demand for soda for kids is very low no matter who is paying for the soda.

Either way, it would seem that the tax on sodas would have to be very high in order to generate the behavioral response most often associated with the taxes. An analogue might be in the realm of cigarettes where taxes had to increase dramatically - by at times multiple dollars per pack - in order to get people to change their behavior. I wonder how that would play in the soda industry, especially for those who do not have children.

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Controlling for individual heterogeneity, but unfortunately using a pitifully small sample, I can say that my soda consumpion is highly correlated with my weight gain.
Would taxation reduce your consumption of soda? Would a tax shift your consumption to diet? Is so, why? If soda and weight are correlated then you must like soda enough to bear the weight gain, which is fine - I don't make interpersonal utility comparisons. What is interesting is if a tax dissuaded consumption then it indicates that the dollar price of weight is greater than the soda cost. I am trying to wrap my head around that possibility. In my mind, the response documented by he study is more intuitively appealing v
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