Tuesday, August 13, 2019
Hunt Allcott (NYU), Benjamin Lockwood (Wharton) & Dmitry Taubinsky (UC-Berkeley), Should We Tax Soda? An Overview of Theory and Evidence, 33 J. Econ. Persp. 202 (2019):
Taxes on sugar-sweetened beverages (SSBs) 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? Americans and some others around the world consume a remarkable amount of SSBs, and the evidence suggests that this generates significant health costs. Building on recent work by Allcott, Lockwood, and Taubinsky (2018) and others, we review the basic economic principles for an optimal sin tax on SSBs. The optimal tax depends on (1) externalities: uninternalized costs to the health system from SSB consumption; (2) internalities: costs consumers impose on themselves by overconsuming sweetened beverages 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 then summarize the empirical evidence on the key parameters that determine how large the tax should be, which suggests that SSB taxes can be welfare enhancing. We end with seven concrete suggestions for policymakers considering an SSB tax. First, tax grams of sugar, not ounces of soda. Second, focus on counteracting externalities and internalities, not on minimizing SSB consumption. Third, design soda taxes to reduce consumption among people generating the largest externalities and internalities. Fourth, make taxes consistent across geographic boundaries. Fifth, use caution when pre-allocating tax revenues. Sixth, when judging regressivity, consider internality benefits, not just who pays the taxes. Finally, our read of the evidence is that taxing soda is probably a good idea.