IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp10765.html
   My bibliography  Save this paper

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

Author

Listed:
  • Andalón, Mabel

    () (University of Melbourne)

  • Gibson, John

    () (University of Waikato)

Abstract

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.

Suggested Citation

  • Andalón, Mabel & Gibson, John, 2017. "The 'Soda Tax' is Unlikely to Make Mexicans Lighter: New Evidence on Biases in Elasticities of Demand for Soda," IZA Discussion Papers 10765, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp10765
    as

    Download full text from publisher

    File URL: http://ftp.iza.org/dp10765.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    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, June.
    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.
    16. repec:eee:jfpoli:v:72:y:2017:i:c:p:94-111 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    demand; household surveys; quality; price; soda taxes; Mexico;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • I10 - Health, Education, and Welfare - - Health - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp10765. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak). General contact details of provider: http://www.iza.org .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.