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Accounting for Product Substitution in the Analysis of Food Taxes Targeting Obesity

  • Miao, Zhen
  • Beghin, John C.
  • Jensen, Helen H.

We extend the existing literature on food taxes targeting obesity. We systematically incorporatethe implicit substitution between added sugars and solid fats into a comprehensive food demandsystem and evaluate the effect of taxes on sugars and fats. The approach conditions how foodand obesity taxes affect total calorie intake. The proposed methodology accounts for the abilityof consumers to substitute leaner low-fat and low-sugar items for rich food items within the samefood group. This substitution is integrated into a calibrated demand system in addition to thesubstitution among food groups, using recent food intake data and existing demand elasticities.Simulations of taxes on added sugars and solid fat show that their impact on consumptionpatterns is understated and the induced welfare loss is overstated when abstracting from thesubstitution possibilities within food groups.

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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 32211.

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Date of creation: 28 Nov 2012
Date of revision:
Publication status: Published in Health Economics 2013, vol. 22 no. 11, pp. 1318-1343
Handle: RePEc:isu:genres:32211
Contact details of provider: Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.eduEmail:


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  1. Chouinard, Hayley H. & Davis, David E. & LaFrance, Jeffrey T. & Perloff, Jeffrey M., 2005. "Milk marketing order winners and losers," CUDARE Working Paper Series 1006, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
  2. Zhen Miao & John C. Beghin & Helen H. Jensen, 2012. "Taxing Sweets: Sweetener Input Tax Or Final Consumption Tax?," Contemporary Economic Policy, Western Economic Association International, vol. 30(3), pages 344-361, 07.
  3. Timothy J. Richards & Paul M. Patterson & Abebayehu Tegene, 2007. "Obesity And Nutrient Consumption: A Rational Addiction?," Contemporary Economic Policy, Western Economic Association International, vol. 25(3), pages 309-324, 07.
  4. John C. Beghin & Jean-Christophe Bureau & Sophie Drogué, 2003. "Calibration of Incomplete Demand Systems in Quantitative Analysis, The," Food and Agricultural Policy Research Institute (FAPRI) Publications 03-wp324, Food and Agricultural Policy Research Institute (FAPRI) at Iowa State University.
  5. Jay Bhattacharya & M. Kate Bundorf, 2005. "The Incidence of the Healthcare Costs of Obesity," NBER Working Papers 11303, National Bureau of Economic Research, Inc.
  6. Shankar, Bhavani, 2009. "Fat Chance: Modelling the Socio-Economic Determinants of Dietary Fat Intake in China," 2009 Conference, August 16-22, 2009, Beijing, China 51538, International Association of Agricultural Economists.
  7. Schroeter, Christiane & Lusk, Jayson & Tyner, Wallace, 2008. "Determining the impact of food price and income changes on body weight," Journal of Health Economics, Elsevier, vol. 27(1), pages 45-68, January.
  8. Abdulai, Awudu & Aubert, Dominique, 2004. "Nonparametric and parametric analysis of calorie consumption in Tanzania," Food Policy, Elsevier, vol. 29(2), pages 113-129, April.
  9. Cash, Sean B. & Sunding, David L. & Zilberman, David, 2004. "Fat Taxes And Thin Subsidies: Prices, Diet, And Health Outcomes," 2004 Annual meeting, August 1-4, Denver, CO 19961, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  10. John Beghin & Jean-Christophe Bureau & Sophie Drogue, 2004. "Calibration of incomplete demand systems in quantitative analysis," Applied Economics, Taylor & Francis Journals, vol. 36(8), pages 839-847.
  11. Kuchler, Fred & Tegene, Abebayehu & Harris, James Michael, 2004. "Taxing Snack Foods: What to Expect for Diet and Tax Revenues," Agricultural Information Bulletins 33607, United States Department of Agriculture, Economic Research Service.
  12. Smed, Sinne & Jensen, Jorgen D. & Denver, Sigrid, 2007. "Socio-economic characteristics and the effect of taxation as a health policy instrument," Food Policy, Elsevier, vol. 32(5-6), pages 624-639.
  13. Smith, Travis A. & Biing-Hwan, Lin & Lee, Jonq-Ying, 2010. "Taxing Caloric Sweetened Beverages: Potential Effects on Beverage Consumption, Calorie Intake, and Obesity," Economic Research Report 95465, United States Department of Agriculture, Economic Research Service.
  14. Yaniv, Gideon & Rosin, Odelia & Tobol, Yossef, 2009. "Junk-food, home cooking, physical activity and obesity: The effect of the fat tax and the thin subsidy," Journal of Public Economics, Elsevier, vol. 93(5-6), pages 823-830, June.
  15. Sanjib Bhuyan & Rigoberto A. Lopez, 1997. "Oligopoly Power in the Food and Tobacco Industries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(3), pages 1035-1043.
  16. Olivier Allais & Patrice Bertail & Véronique Nichèle, 2010. "The Effects of a Fat Tax on French Households' Purchases: A Nutritional Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 92(1), pages 228-245.
  17. Albert J. Reed & J. William Levedahl & Charles Hallahan, 2005. "The Generalized Composite Commodity Theorem and Food Demand Estimation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(1), pages 28-37.
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