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Fiscal-Food Policies are Likely Misinformed by Biased Price Elasticities from Household Surveys: Evidence from Melanesia

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  • John Gibson
  • Alessandro Romeo

Abstract

Fiscal-food policies use taxes to alter relative food prices so as to change diets and are suggested for reducing non-communicable diseases in the Pacific. Price elasticity estimates used by advocates of fiscal-food policies are often biased and may make policy makers too optimistic about small taxes on unhealthy food and drink inducing big changes in diets. The bias is illustrated using the example of the demand for soft drinks in a household survey from the Solomon Islands, with further evidence from Papua New Guinea. About one-third of consumer response to soft drink price variation in the Solomon Islands is on the quantity margin, with two-thirds on the quality margin. If the quality response is wrongly treated as a quantity response to price—as in most studies—the price elasticity of soft drink demand is exaggerated by a factor of two in Papua New Guinea and three in the Solomon Islands.
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  • 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.
    • Handle: RePEc:bla:asiaps:v:4:y:2017:i:3:p:405-416
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    1. 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.
    2. Julio C. Arteaga & Daniel Flores & Edgar Luna, 2021. "The effect of a soft drink tax in Mexico: evidence from time series industry data," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 65(2), pages 349-366, April.
    3. Gibson, John & Tucker, Steven & Boe-Gibson, Geua, 2019. "Testing an Information Intervention: Experimental Evidence on the Effect of Jamie Oliver on Fizzy Drinks Demand," MPRA Paper 94182, University Library of Munich, Germany.
    4. Andalón, Mabel & Gibson, John, 2018. "The ‘soda tax’ is unlikely to make Mexicans lighter or healthier: New evidence on biases in elasticities of demand for soda," MPRA Paper 86370, University Library of Munich, Germany.
    5. Vigani,Mauro & Dudu,Hasan, 2021. "Demand Analysis of Multiple Goods and Services in Vietnam," Policy Research Working Paper Series 9803, The World Bank.

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