Do High Consumers of Sugar‐Sweetened Beverages Respond Differently to Price Changes? A Finite Mixture IV‐Tobit Approach

This study compares the impact of sugar‐sweetened beverages (SSBs) tax between moderate and high consumers in Australia. The key methodological contribution is that price response heterogeneity is identified while controlling for censoring of consumption at zero and endogeneity of expenditure by using a finite mixture instrumental variable Tobit model. The SSB price elasticity estimates show a decreasing trend across increasing consumption quantiles, from −2.3 at the median to −0.2 at the 95th quantile. Although high consumers of SSBs have a less elastic demand for SSBs, their very high consumption levels imply that a tax would achieve higher reduction in consumption and higher health gains. Our results also suggest that an SSB tax would represent a small fiscal burden for consumers whatever their pre‐policy level of consumption, and that an excise tax should be preferred to an ad valorem tax. Copyright © 2015 John Wiley & Sons, Ltd.