Do Obese and Nonobese Consumers Respond Differently to Price Changes? Implications of Preference Heterogeneity for Using Food Taxes and Subsidies to Reduce Obesity

Preference heterogeneity in food demand has important health and equity implications for targeted taxes and subsidies intended to enhance diet quality and reduce obesity. We study the role of obesity in the purchases of food at home and food away from home using data from the nationally representative National Household Food Acquisition and Purchase Survey. We develop a method for incorporating the complex survey design and retail scanner data into the estimation of a 21-good Exact Affine Stone Index demand system with endogenous prices and truncated purchases. We find significant preference heterogeneity associated with the obesity status of household members. Counterfactual simulations find that 1) a sweetened beverage tax is effective in increasing the healthfulness of grocery purchases by lower-income obese consumers; 2) the nutritional benefits of a fruit and vegetable subsidy are concentrated on nonobese consumers with little improvement in obese consumers’ Healthy Eating Index and an increase in their total calories purchased; and 3) a fiscally neutral healthy food subsidy fully funded by an unhealthy food tax benefits nonobese consumers both financially and nutritionally more than it does obese consumers. These findings show that lowering healthy food prices without raising the cost of unhealthy foods is unlikely to reduce obesity. Policymakers in favor of a systems approach of simultaneously taxing unhealthy foods and subsidizing healthy foods should be mindful of the distributional effects of this policy on obese consumers and the lower-income population.