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Effects of a 20% price increase of sugar-sweetened beverages on consumption and welfare in Brazil

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Listed:
  • Paula Pereda, Maria Alice Christofoletti, Shu Wen Ng,
  • Rafael Moreira Claro, Ana Clara Duran, Carlos Augusto Monteiro

Abstract

Background: The consumption of sugar-sweetened beverages (SSB) is associated with increased risk of obesity, diabetes and heart disease. In 2016, the World Health Organization recommended fiscal policies aiming at increasing SSB prices by at least 20% to reduce its consumption and the occurrence of these outcomes. Objective: To estimate the effects of a 20% price increase of SSB on consumption and welfare outcomes in Brazil. Design: Data from the 2008-09 National Household Budget Survey (HBS) were used to estimate price and income elasticities of consumption. We propose a two-step procedure. First, we estimate the unconditional price elasticities of food and non-food goods. Second, using a QUAIDS model, we build a system of demand equations for food groups. Welfare effects were estimated based on the change on utility and on the excess burden of the simulated tax policy. Results: We find that a 20% price increase in SSB price would lead to a 16.6% reduction on its consumption. The demand for unhealthy foods (SSB, processed and ultra-processed foods) is expected to decrease by 6.2%. The tax could generate US$ 61.3 million per month in government revenues, and the estimated short-term inefficiencies, or dead-weight losses are US$ 6 million per month. Average households would need to receive US$ 0.29 per week to become welfare neutral after the tax is implemented. Conclusions: Due to the potential high benefits of the policy, the proposed 20% tax might be cost-beneficial in Brazil.

Suggested Citation

  • Paula Pereda, Maria Alice Christofoletti, Shu Wen Ng, & Rafael Moreira Claro, Ana Clara Duran, Carlos Augusto Monteiro, 2019. "Effects of a 20% price increase of sugar-sweetened beverages on consumption and welfare in Brazil," Working Papers, Department of Economics 2019_33, University of São Paulo (FEA-USP).
  • Handle: RePEc:spa:wpaper:2019wpecon33
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    More about this item

    Keywords

    Demand system; sugar-sweetened beverages; beverage tax; welfare analysis;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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