By ounce or by calorie: The differential effects of alternative sugar-sweetened beverage tax strategies

Chen Zhen, Ian F. Brissette, Ryan Ruff

Research output: Contribution to journalArticle

Abstract

The obesity epidemic and excessive consumption of sugar-sweetened beverages have led to proposals of economics-based interventions to promote healthy eating in the United States. Targeted food and beverage taxes and subsidies are prominent examples of such potential intervention strategies. This paper examines the differential effects that taxing sugar-sweetened beverages by calories and by ounces have on beverage demand. To properly measure the extent of substitution and complementarity between beverage products, we developed a fully modified distance metric model of differentiated product demand that endogenizes the cross-price effects. We illustrated the proposed methodology in a linear approximate almost ideal demand system, although other flexible demand systems can also be used. In the empirical application using supermarket scanner data, the product-level demand model consists of 178 beverage products with a combined market share of over 90%. The novel demand model outperformed the conventional distance metric model in non-nested model comparison tests, and in terms of the economic significance of model predictions. In the fully modified model, a calorie-based beverage tax was estimated to cost $1.40 less in compensating variation than an ounce-based tax per 3,500 beverage calories reduced. This difference in welfare cost estimates between two tax strategies is more than three times the difference estimated by the conventional distance metric model. If applied to products purchased from all sources, a 0.04-cent per kcal tax on sugar-sweetened beverages is predicted to reduce annual per capita beverage intake by 5,800 kcal.

Original languageEnglish (US)
Pages (from-to)1070-1083
Number of pages14
JournalAmerican Journal of Agricultural Economics
Volume96
Issue number4
DOIs
StatePublished - 2014

Fingerprint

Beverages
taxes
beverages
sugars
Economic Models
Tax
Costs and Cost Analysis
Food and Beverages
Taxes
market share
econometric models
healthy diet
supermarkets
scanners
subsidies
Obesity
Economics
obesity
economics
prediction

Keywords

  • distance metric demand model
  • Obesity
  • sugar-sweetened beverage tax

ASJC Scopus subject areas

  • Agricultural and Biological Sciences (miscellaneous)
  • Economics and Econometrics

Cite this

By ounce or by calorie : The differential effects of alternative sugar-sweetened beverage tax strategies. / Zhen, Chen; Brissette, Ian F.; Ruff, Ryan.

In: American Journal of Agricultural Economics, Vol. 96, No. 4, 2014, p. 1070-1083.

Research output: Contribution to journalArticle

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