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The ‘soda tax’ is unlikely to make Mexicans lighter or healthier: New evidence on biases in elasticities of demand for soda

Author

Listed:
  • Andalón, Mabel
  • Gibson, John

Abstract

Mexico’s ‘soda tax’ has been predicted to reduce average weight of Mexicans by up to three pounds, based on extant estimates of the own-price elasticity of quantity demand for soda of between −1.0 and −1.3. These elasticity estimates from household survey data are exaggerated by not accounting for how consumers adjust quality demanded as price changes. Some estimates also are biased by correlated measurement error. To illustrate these biases we use budget survey data and soda price data for Mexico to estimate demand models that correct for both errors. The corrected own-price elasticity of quantity demand is between −0.1 and −0.4, implying that the soda tax might cut average weight by just half a pound, which is too little to improve population health.

Suggested Citation

  • Andalón, Mabel & Gibson, John, 2018. "The ‘soda tax’ is unlikely to make Mexicans lighter or healthier: New evidence on biases in elasticities of demand for soda," MPRA Paper 86370, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:86370
    as

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    File URL: https://mpra.ub.uni-muenchen.de/86370/1/MPRA_paper_86370.pdf
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    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. Cawley, John, 2015. "An economy of scales: A selective review of obesity's economic causes, consequences, and solutions," Journal of Health Economics, Elsevier, vol. 43(C), pages 244-268.
    10. 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. 0(Issue 2), pages 1-34.
    11. Arteaga, Julio Cesar & Flores, Daniel & Luna, Edgar, 2017. "The effect of a soft-drink tax in Mexico: a time series approach," MPRA Paper 80831, University Library of Munich, Germany.
    12. repec:oup:ajagec:v:99:y:2017:i:2:p:481-498. is not listed on IDEAS
    13. 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.
    14. 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.
    15. repec:eee:jfpoli:v:72:y:2017:i:c:p:94-111 is not listed on IDEAS
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    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

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