Friday, August 16, 2019

Taxing Sugar-Sweetened Beverages

Jurisdictions around the world have been implementing taxes on sugar-sweetened beverages. Here's a map

Hunt Allcott, Benjamin B. Lockwood, and Dmitry Taubinsky focus on studies of the eight US jurisdictions  that have adopted such a tax, along with the broader literature on causes and costs of obesity, in "Should We Tax Sugar-Sweetened Beverages? An Overview of Theory and Evidence" in the just-released Summer 2019  Journal of Economic Perspectives. (Full disclosure: I'm the managing editor of JEP, and thus predisposed to believe that the articles are of high quality and widespread interest.) Here's their table of the US jurisdictions that have imposed a tax on sugar-sweetened beverages. 
Making the case for (or against) a tax on sugar-sweetened beverage requires addressing a number of questions. 
  • Why focus on sugar-sweetened beverages rather than on other sources of calories, or on candy and junk food?
  • How much does consumption of sugar-sweetened beverages lead to heath or other harms like tooth decay?
  • How much does is tax on sugar-sweetened beverages passed through from retailers to consumers?
  • How much does a tax on sugar-sweetened beverages lead to people just shopping in a nearby jurisdiction where they aren't taxed?
  • How much does the share of tax on sugar-sweetened beverages that is passed through to consumers affect the health harms--in particular for those consumers most at risk (like children who consume a high volume of such drinks)--especially after tak
  • To what extent should the harms from sugar-sweetened beverages be counted as "externalities," which are costs imposed upon others, and to what extent are the "internalities," a term which refers to costs that the consumers of these products were (perhaps because of imperfect information or lack of self-control) not taking into account that they were imposing on themselves?
  • How much money might a tax on sugar-sweetened beverages collect?
  • To what extent do the costs of such a tax, and also the health benefits of such a tax, fall more heavily on those with lower income levels?
  • Putting all these factors together, does a tax on sugar-sweetened beverages seem like a wise policy?
This may seem like a lot of complications for answering a question about a small-scale policy. But for those who want a serious and actual answer , these kinds of questions can't be avoided. I won't try to summarize all the points of the paper, but the tone of answers can be inferred from the bottom line: 
[W]e estimate that the socially optimal sugar-sweetened beverage tax is between 1 and 2.1 cents per ounce. One can understand this as coming from the correction needed to offset the negative externality (about 0.8 cents per ounce) and internality (about 1 cent per ounce ... Together, these rough estimates suggest an optimal tax of about 1.5 cents per ounce. While there is considerable uncertainty in these optimal tax estimates, the optimal tax is not zero and may be higher than the levels in most US cities to date. However, for policymakers who are philosophically opposed to considering internalities in an optimal tax calculation, the optimal tax considering only externalities is around 0.4 cents per ounce. ...

[W]e estimate that the social welfare benefits from implementing the optimal tax nationwide (relative to having zero tax) are between $2.4 billion and $6.8 billion
per year. These gains would be substantially larger if the tax rate were to scale with
sugar content. Of course, such calculations require strong assumptions and depend on uncertain empirical estimates ...  Furthermore, sugar-sweetened beverage taxes are not a panacea—they will not, by themselves, solve the obesity epidemic in America or elsewhere. But sin taxes have proven to be a feasible and effective policy instrument in other domains, and the evidence suggests that the benefits of sugar-sweetened beverage taxes likely exceed the costs.