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The impact of soda taxes on consumer welfare: implications of storability and taste heterogeneity

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  • Emily Yucai Wang

Abstract

type="main"> The typical analysis on the effectiveness of soda taxes relies on price elasticity estimates from static demand models, which ignores consumers' inventory behaviors and their persistent tastes. This article provides estimates of the relevant price elasticities based on a dynamic demand model that better addresses potential intertemporal substitution and unobservable persistent heterogeneous tastes. It finds that static analyses overestimate the long-run own-price elasticity of regular soda by 60.8%, leading to overestimated consumption reduction of sugar-sweetened soft drinks by up to 57.9% in some cases. Results indicate that soda taxes will raise revenue but are unlikely to substantially impact soda consumption.

Suggested Citation

  • Emily Yucai Wang, 2015. "The impact of soda taxes on consumer welfare: implications of storability and taste heterogeneity," RAND Journal of Economics, RAND Corporation, vol. 46(2), pages 409-441, June.
  • Handle: RePEc:bla:randje:v:46:y:2015:i:2:p:409-441
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    File URL: http://hdl.handle.net/10.1111/1756-2171.12090
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Rodrigo Aranda Balcazar & Michael Darden & Donald Rose, 2016. "Information, Choice, and Obesity: Measuring the Impact of the New York City Calorie Labeling Mandate on Obesity," Working Papers 1611, Tulane University, Department of Economics.
    2. Andrew T. Ching & Matthew Osborne, 2019. "Identification and Estimation of Forward-looking Behavior: The Case of Consumer Stockpiling," GRU Working Paper Series GRU_2019_023, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    3. 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).
    4. repec:eee:jfpoli:v:84:y:2019:i:c:p:111-120 is not listed on IDEAS
    5. Gonzalez, J. & Lacaze, V., 2018. "New goods with new attributes: combining revealed and stated preferences to assess the effect of a novel quality label in the food industry," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277559, International Association of Agricultural Economists.
    6. repec:bla:ausecr:v:51:y:2018:i:1:p:41-51 is not listed on IDEAS
    7. Jonathan Pincus, 2018. "Grattan Institute's Case for Sugar Tax Is Not Proven," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 51(1), pages 41-51, March.
    8. Gonzalez, Julia, 2018. "Soda consumption and brand loyalty," 2018 Annual Meeting, August 5-7, Washington, D.C. 273980, Agricultural and Applied Economics Association.
    9. repec:oup:ajagec:v:99:y:2017:i:1:p:18-33. is not listed on IDEAS
    10. 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.
    11. Dubois, Pierre & Griffith, Rachel & O'Connell, Martin, 2017. "How well targeted are soda taxes?," TSE Working Papers 17-868, Toulouse School of Economics (TSE), revised Jan 2019.
    12. repec:oup:cesifo:v:64:y:2018:i:1:p:1-14. is not listed on IDEAS

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