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Fat Taxes: Big Money for Small Change

Author

Listed:
  • Chouinard Hayley H

    (Washington State University)

  • Davis David E

    (South Dakota State University)

  • LaFrance Jeffrey T

    (University of California, Berkeley)

  • Perloff Jeffrey M

    (University of California, Berkeley)

Abstract

In an attempt to improve the nation's health, many U.S. policy makers have or are considering imposing taxes on the fat in food. Dairy products constitute a large portion of at home fat consumption of particularly harmful types of fat, and nearly all U.S. households consume these products. We estimate a demand system for dairy products, which we use to simulate substitution effects among dairy products and the welfare impacts of fat taxes on various consumer groups. We find that even a 10 percent ad valorem tax on the percentage of fat would reduce fat consumption by less than a percentage point. Given that the demand for most dairy products is inelastic, a fat tax is an effective means to raise revenue. However, these fat taxes are unattractive because they are extremely regressive, and the elderly and poor suffer much greater welfare losses from the taxes than do younger and richer consumers.

Suggested Citation

  • Chouinard Hayley H & Davis David E & LaFrance Jeffrey T & Perloff Jeffrey M, 2007. "Fat Taxes: Big Money for Small Change," Forum for Health Economics & Policy, De Gruyter, vol. 10(2), pages 1-30, June.
    • Handle: RePEc:bpj:fhecpo:v:10:y:2007:i:2:n:2
    DOI: 10.2202/1558-9544.1071
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    References listed on IDEAS

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