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Fat Taxes: Big Money for Small Change

Listed author(s):
  • 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)

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.

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File URL: https://www.degruyter.com/view/j/fhep.2007.10.2/fhep.2007.10.2.1071/fhep.2007.10.2.1071.xml?format=INT
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Article provided by De Gruyter in its journal Forum for Health Economics & Policy.

Volume (Year): 10 (2007)
Issue (Month): 2 (June)
Pages: 1-30

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Handle: RePEc:bpj:fhecpo:v:10:y:2007:i:2:n:2
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References listed on IDEAS
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  1. Gould, Brian W. & Cox, Thomas L. & Perali, Carlo Federico, 1990. "The Demand For Fluid Milk Products In The U.S.: A Demand Systems Approach," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 15(01), July.
  2. Bergtold, Jason S. & Akobundu, Eberechukwu & Peterson, Everett B., 2004. "The FAST Method: Estimating Unconditional Demand Elasticities for Processed Foods in the Presence of Fixed Effects," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(02), August.
  3. Barzel, Yoram, 1976. "An Alternative Approach to the Analysis of Taxation," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1177-1197, December.
  4. Dale M. Heien & Cathy Roheim Wessells, 1988. "The Demand for Dairy Products: Structure, Prediction, and Decomposition," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 70(2), pages 219-228.
  5. Steven T. Yen & Andrew M. Jones, 1997. "Household Consumption of Cheese: An Inverse Hyperbolic Sine Double-Hurdle Model with Dependent Errors," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(1), pages 246-251.
  6. Fred Kuchler & Abebayehu Tegene & J. Michael Harris, 2005. "Taxing Snack Foods: Manipulating Diet Quality or Financing Information Programs?," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 27(1), pages 4-20.
  7. John L. Park & Rodney B. Holcomb & Kellie Curry Raper & Oral Capps, 1996. "A Demand Systems Analysis of Food Commodities by U.S. Households Segmented by Income," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(2), pages 290-300.
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