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The 'Soda Tax' is Unlikely to Make Mexicans Lighter: New Evidence on Biases in Elasticities of Demand for Soda

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  • Andalón, Mabel

    (University of Melbourne)

  • Gibson, John

    (University of Waikato)

Abstract

Mexico's 'soda tax' has been predicted to reduce average weights by two to four pounds, based on extant estimates of an own-price elasticity of quantity demand for soda of between ?1.0 and ?1.3. These estimates ignore consumer responses on the quality margin and correlated measurement errors. We use Mexican household budget survey data and city-level soda prices to estimate unrestricted demand models that correct for both errors. The corrected own-price elasticity of quantity demand is just ?0.2 to ?0.3, so tax-induced soda price increases might cut average weights by less than one pound, which is too small to improve health.

Suggested Citation

  • Andalón, Mabel & Gibson, John, 2017. "The 'Soda Tax' is Unlikely to Make Mexicans Lighter: New Evidence on Biases in Elasticities of Demand for Soda," IZA Discussion Papers 10765, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp10765
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    References listed on IDEAS

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    11. Maria Eugenia Bonilla-Chacin & Roberto Magno Iglesias & Agustina Sara Suaya & Claudia Trezza & Claudia Macias, 2016. "Learning from the Mexican Experience with Taxes on Sugar-Sweetened Beverages and Energy-dense Foods of Low Nutritional Value: Poverty and Social Impact Analysis," Health, Nutrition and Population (HNP) Discussion Paper Series 106595, The World Bank.
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    17. Friedman, Jed & Beegle, Kathleen & De Weerdt, Joachim & Gibson, John, 2017. "Decomposing response error in food consumption measurement: Implications for survey design from a randomized survey experiment in Tanzania," Food Policy, Elsevier, vol. 72(C), pages 94-111.
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    Cited by:

    1. Levasseur, Pierre, 2021. "Do junk food bans in school really reduce childhood overweight? Evidence from Brazil," Food Policy, Elsevier, vol. 99(C).
    2. John Gibson & Bonggeun Kim, 2017. "30 Years of Being Wrong: A Systematic Review and Critical Test of the Cox and Wohlgenant Approach to Quality-Adjusted Prices in Demand Analysis," Working Papers in Economics 17/16, University of Waikato.
    3. Gibson, John & Kim, Bonggeun, 2019. "Quality, quantity, and spatial variation of price: Back to the bog," Journal of Development Economics, Elsevier, vol. 137(C), pages 66-77.
    4. John Gibson & Alessandro Romeo, 2017. "Fiscal-Food Policies are Likely Misinformed by Biased Price Elasticities from Household Surveys: Evidence from Melanesia," Asia and the Pacific Policy Studies, Wiley Blackwell, vol. 4(3), pages 405-416, September.

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    More about this item

    Keywords

    demand; household surveys; quality; price; soda taxes; Mexico;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • I10 - Health, Education, and Welfare - - Health - - - General

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