Do sugar taxes work?

The Clinton vs Trump battle has captured the headlines, but 8 November 2016 is voting day for many public officials in the US, with voters casting ballots for local positions ranging from school boards to coroners.

In four US cities, residents will also be voting on whether to tax soft drink and other sugar-sweetened beverages. Some proponents say the taxes would raise prices by exactly the amount of the tax, encouraging consumers to cut down on soft drink and improve their health.

But a Cornell University economist, who studied a similar tax imposed in Berkeley, California, says that prices might rise by only half that amount, or even less.

“Our research suggests that these taxes may be only partially passed on to consumers in the form of higher prices,” said John Cawley, professor of policy analysis and management and of economics, who found that prices in Berkeley rose by only 43.1% of the tax.

Cawley says the limited price increase is consistent with consumers being sensitive to prices and, in that respect, is evidence that consumers are responding to the policy.

The tax in Berkeley was the country’s first on sugar-sweetened beverages for public health purposes. The November ballot will determine whether the California cities of Albany, Oakland and San Francisco, as well as Boulder, Colorado, will join them in adopting the anti-obesity policy.

The study found the closer a store was to an untaxed rival, the less it passed the taxes on to consumers. Cawley says this may be due to store owners being concerned about customers shopping outside of Berkeley to avoid the taxes and may well be a factor for other city-level taxes as well.

Taxes on sugar-sweetened beverages are a step in the right direction, Cawley says, but the design could be improved to encompass all high-calorie, low-nutrition foods, such as lollies and biscuits. Ideally, he said, it would take effect across the country.

He also suggests restricting energy-dense foods from food assistance programs.

“When we have an obesity epidemic and high rates of diabetes, it doesn’t make sense for a government program to offer free soda.”

Cawley’s research, ‘The Pass-Through of Taxes on Sugar-Sweetened Beverages to Retail Prices: The Case of Berkeley, California’, was published in the Journal of Policy Analysis and Management.