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Mandatory labels, taxes and market forces: An empirical evaluation of fat policies

Author

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  • Olivier Allais

    (ALISS - Alimentation et sciences sociales - INRA - Institut National de la Recherche Agronomique)

  • Fabrice Etilé

    (ALISS - Alimentation et sciences sociales - INRA - Institut National de la Recherche Agronomique, PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PSE - Paris-Jourdan Sciences Economiques - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)

  • Sébastien Lecocq

    (ALISS - Alimentation et sciences sociales - INRA - Institut National de la Recherche Agronomique)

Abstract

The public-health community views the mandatory labelling and taxation of fat as promising tools to control the growth of food-related chronic disease. This paper is the first to propose an ex ante evaluation of these two policy options in an oligopolistic setting with differentiated products and heterogeneous demand. Using household scanner data on fromages blancs and dessert yogurts, we separately identify consumer preferences for fat and front-of-pack fat labels by exploiting an exogenous difference in legal labelling requirements between these two product categories. Demand estimates are then combined with a supply model to evaluate both policies. In the absence of any producer price response, making fat labels mandatory reduces the fat supplied to regular consumers in this market by 38%; an ad-valorem tax of 10% (5%) on the producer price of full-fat (half-skimmed) products has a similar impact. Allowing producer price reactions, however, yields much smaller effects: a 9% drop for the fat tax, and a fall of only 1:5% for mandatory labels. Producers thus neutralise up to 96% of the impact of mandatory labelling on demand, via large price cuts on products with large ex ante margins. This illustrates how market forces are largely able to defeat the intended effect of market-based public-health interventions.

Suggested Citation

  • Olivier Allais & Fabrice Etilé & Sébastien Lecocq, 2012. "Mandatory labels, taxes and market forces: An empirical evaluation of fat policies," PSE Working Papers halshs-00736556, HAL.
  • Handle: RePEc:hal:psewpa:halshs-00736556
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    2. Bonnet, Céline & Richards, Timothy J., 2016. "Models of Consumer Demand for Differentiated Products," TSE Working Papers 16-741, Toulouse School of Economics (TSE).
    3. Alberto Gago & Xavier Labandeira & Xiral López Otero, 2014. "A Panorama on Energy Taxes and Green Tax Reforms," Hacienda Pública Española / Review of Public Economics, IEF, vol. 208(1), pages 145-190, March.
    4. Fichera, Eleonora & von Hinke, Stephanie, 2020. "The response to nutritional labels: Evidence from a quasi-experiment," Journal of Health Economics, Elsevier, vol. 72(C).
    5. Réquillart, Vincent & Soler, Louis-Georges & Zang, Yu, 2016. "Quality standards versus nutritional taxes: Health and welfare impacts with strategic firms," Journal of Health Economics, Elsevier, vol. 50(C), pages 268-285.
    6. Salgado, Juan Carlos & Ng, Shu Wen, 2019. "Understanding heterogeneity in price changes and firm responses to a national unhealthy food tax in Mexico," Food Policy, Elsevier, vol. 89(C).
    7. Chen Zhen & Mary Muth & Abigail Okrent & Shawn Karns & Derick Brown & Peter Siegel, 2019. "Do differences in reported expenditures between household scanner data and expenditure surveys matter in health policy research?," Health Economics, John Wiley & Sons, Ltd., vol. 28(6), pages 782-800, June.
    8. Alberto Pench, 2020. "Time Allocation and Snacks and Sugar Sweetened Beverages Taxation," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 6(3), pages 469-492, November.
    9. Anurag Sharma & Fabrice Etilé & Kompal Sinha, 2016. "The Effect of Introducing a Minimum Price on the Distribution of Alcohol Purchase: A Counterfactual Analysis," Health Economics, John Wiley & Sons, Ltd., vol. 25(9), pages 1182-1200, September.
    10. Juan Carlos Caro & Pourya Valizadeh & Alejandrina Correa & Andres Silva & Shu Wen Ng, 2020. "Combined fiscal policies to promote healthier diets: Effects on purchases and consumer welfare," PLOS ONE, Public Library of Science, vol. 15(1), pages 1-23, January.
    11. Allais, Oliver & Bonnet, Céline & Réquillart, Vincent & Spiteri, Marine, 2020. "Reformulation and taxes for healthier consumption: Empirical evidence in the French Dessert market," TSE Working Papers 20-1082, Toulouse School of Economics (TSE).
    12. Alberto Pench, 0. "Time Allocation and Snacks and Sugar Sweetened Beverages Taxation," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 0, pages 1-24.

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    More about this item

    Keywords

    Nutrition; Labelling; Price fat; Informatic; D43; D12; I18;
    All these keywords.

    JEL classification:

    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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