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The Effect of Prices on Nutrition: Comparing the Impact of Product- and Nutrient-Specific Taxes

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  • Matthew Harding
  • Michael Lovenheim

Abstract

This paper provides an analysis of the role of prices in determining food purchases and nutrition using very detailed transaction-level observations for a large, nationally-representative sample of US consumers over the period 2002-2007. Using product- specific nutritional information, we develop a new method of partitioning the product space into relevant nutritional clusters that define a set of nutritionally-bundled goods, which parsimoniously characterize consumer choice sets. We then estimate a large utility-derived demand system over this joint product-nutrient space that allows us to calculate price and expenditure elasticities. Using our structural demand estimates, we simulate the role of product taxes on soda, sugar-sweetened beverages, packaged meals, and snacks, and nutrient taxes on fat, salt, and sugar. We find that a 20% nutrient tax has a significantly larger impact on nutrition than an equivalent product tax, due to the fact that these are broader-based taxes. However, the costs of these taxes in terms of consumer utility are not higher. A sugar tax in particular is a powerful tool to induce healthier nutritive bundles among consumers.

Suggested Citation

  • Matthew Harding & Michael Lovenheim, 2014. "The Effect of Prices on Nutrition: Comparing the Impact of Product- and Nutrient-Specific Taxes," NBER Working Papers 19781, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:19781 Note: HE PE
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    Cited by:

    1. Chakraborty, Chiranjit & Joseph, Andreas, 2017. "Machine learning at central banks," Bank of England working papers 674, Bank of England.
    2. Ariane Kehlbacher & Richard Tiffin & Adam Briggs & Mike Berners-Lee & Peter Scarborough, 2016. "The distributional and nutritional impacts and mitigation potential of emission-based food taxes in the UK," Climatic Change, Springer, vol. 137(1), pages 121-141, July.
    3. Shewmake, Sharon & Okrent, Abigail & Thabrew, Lanka & Vandenbergh, Michael, 2015. "Predicting consumer demand responses to carbon labels," Ecological Economics, Elsevier, vol. 119(C), pages 168-180.
    4. Cremer, Helmuth & Goulão, Catarina & Roeder, Kerstin, 2016. "Earmarking and the political support of fat taxes," Journal of Health Economics, Elsevier, vol. 50(C), pages 258-267.
    5. repec:bla:econom:v:84:y:2017:i:333:p:34-53 is not listed on IDEAS
    6. Rachel Griffith & Martin O'Connell & Kate Smith, 2017. "The Importance of Product Reformulation Versus Consumer Choice in Improving Diet Quality," Economica, London School of Economics and Political Science, vol. 84(333), pages 34-53, January.

    More about this item

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I19 - Health, Education, and Welfare - - Health - - - Other

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