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The 'Soda Tax' is Unlikely to Make Mexicans Lighter: New Evidence on Biases in Elasticities of Demand for Soda

Listed author(s):
  • Andalón, Mabel

    ()

    (University of Melbourne)

  • Gibson, John

    ()

    (University of Waikato)

Mexico's 'soda tax' has been predicted to reduce average weights by two to four pounds, based on extant estimates of an own-price elasticity of quantity demand for soda of between −1.0 and −1.3. These estimates ignore consumer responses on the quality margin and correlated measurement errors. We use Mexican household budget survey data and city-level soda prices to estimate unrestricted demand models that correct for both errors. The corrected own-price elasticity of quantity demand is just −0.2 to −0.3, so tax-induced soda price increases might cut average weights by less than one pound, which is too small to improve health.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 10765.

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Length: 44 pages
Date of creation: May 2017
Handle: RePEc:iza:izadps:dp10765
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  1. Deaton, Angus, 1987. "Estimation of own- and cross-price elasticities from household survey data," Journal of Econometrics, Elsevier, vol. 36(1-2), pages 7-30.
  2. Deaton, Angus, 1988. "Quality, Quantity, and Spatial Variation of Price," American Economic Review, American Economic Association, vol. 78(3), pages 418-430, June.
  3. Maria Eugenia Bonilla-Chacin & Roberto Magno Iglesias & Agustina Sara Suaya & Claudia Trezza & Claudia Macias, 2016. "Learning from the Mexican Experience with Taxes on Sugar-Sweetened Beverages and Energy-dense Foods of Low Nutritional Value: Poverty and Social Impact Analysis," Health, Nutrition and Population (HNP) Discussion Paper Series 106595, The World Bank.
  4. Deaton, Angus, 1990. "Price elasticities from survey data : Extensions and Indonesian results," Journal of Econometrics, Elsevier, vol. 44(3), pages 281-309, June.
  5. Emily Yucai Wang, 2015. "The impact of soda taxes on consumer welfare: implications of storability and taste heterogeneity," RAND Journal of Economics, RAND Corporation, vol. 46(2), pages 409-441, 06.
  6. Gibson, John & Kim, Bonggeun, 2013. "Quality, Quantity, and Nutritional Impacts of Rice Price Changes in Vietnam," World Development, Elsevier, vol. 43(C), pages 329-340.
  7. McKelvey, Christopher, 2011. "Price, unit value, and quality demanded," Journal of Development Economics, Elsevier, vol. 95(2), pages 157-169, July.
  8. John Gibson & Scott Rozelle, 2005. "Prices and Unit Values in Poverty Measurement and Tax Reform Analysis," World Bank Economic Review, World Bank Group, vol. 19(1), pages 69-97.
  9. Shumway, C. Richard & Davis, George C., 2001. "Does consistent aggregation really matter?," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 45(2), June.
  10. Colchero, M.A. & Salgado, J.C. & Unar-Munguía, M. & Hernández-Ávila, M. & Rivera-Dommarco, J.A., 2015. "Price elasticity of the demand for sugar sweetened beverages and soft drinks in Mexico," Economics & Human Biology, Elsevier, vol. 19(C), pages 129-137.
  11. Thomas L. Cox & Michael K. Wohlgenant, 1986. "Prices and Quality Effects in Cross-Sectional Demand Analysis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 68(4), pages 908-919.
  12. John Gibson & Scott Rozelle, 2011. "The effects of price on household demand for food and calories in poor countries: are our databases giving reliable estimates?," Applied Economics, Taylor & Francis Journals, vol. 43(27), pages 4021-4031.
  13. John Gibson & Bonggeun Kim, 2016. "Quality, Quantity and Spatial Variation of Price: Back to the Bog," Working Papers in Economics 16/10, University of Waikato.
  14. Grogger, Jeff, 2016. "Soda Taxes and the Prices of Sodas and Other Drinks: Evidence from Mexico," IZA Discussion Papers 9682, Institute for the Study of Labor (IZA).
  15. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-326, June.
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