Wednesday, 7 July 2010

USDA/ERS study estimates obesity-reducing effects of a soda tax

A 20% soda tax would reduce daily food energy intake for adults by 37 calories, enough to reduce the prevalence of obesity by almost 10%, according to a new report this week from USDA's Economic Research Service (ERS).  The prevalence of obesity for adults could fall from 33.4% to 30.4%, the report estimates.  The report corroborates other recent research suggesting that the obesity prevention impact of taxes on sugar sweetened beverages could be substantial.

There are a couple reasons why the estimated impact is higher than one might have expected based on previous research.  First, the report, by ERS researchers Travis Smith, Biing-Hwan Lin, and Jong-Yin Lee, estimated a somewhat stronger consumer response to beverage price changes than previous research used.  The new estimated own-price elasticity of -1.26 means that a 10% increase in price leads to about a 12.6% reduction in consumption.  Second, even a fairly small change in average daily soda consumption accumulates over time, leading to a notable estimated change in weight for a year's time.

Purely paternalistic taxes motivated by public health tend to generate political push-back, especially from more conservative policy-makers, but also from consumers who resist having their choices directed by public policy.  I think such taxes may be easier to explain to people when the tax revenues are needed in any case, to provide essential government services.  The idea is: "Paying for teachers and police requires some revenue source.  A tax on soda makes as much sense as a tax on other more meritorious goods, especially if people don't want their income or property taxes raised either."  The health benefits could be mentioned in passing as an additional advantage.  In this spirit, the Rudd Center at Yale has recently posted an online revenue calculator for beverage tax proposals.

The growing interest in beverage taxes during tough fiscal times is putting stress on beverage manufacturers.  The American Beverage Association in June pointed to earlier estimates, contradicted by the new USDA report, showing "a 20 percent tax on a soft drink would decrease Body Mass Index (BMI) for an obese person by just 0.02, an amount not even measurable on a bathroom scale."  The association's press release is headlined, "Reducing soda consumption is a simplistic and ineffective solution to public health challenges."

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