Thursday, 20 October 2011

Agricultural economists say excise taxes for soda appear to be good policy

The new issue of Choices Magazine, the outreach publication from the agricultural economics profession, has a special policy theme on excise taxes for soda.  Although there are some interesting differences across the several articles, the final article by Carlisle Ford Runge, Justin Johnson, and Carlisle Piehl Runge, sums up:

Excise Taxes Appear to Be Good Policy

Taxing soda will reduce its consumption and raise revenue; by one recent estimate a 1 cent/oz. national U.S. excise tax would cut soda calorie consumption 8-10% and raise $15 billion per year (Brownell, et al., 2009). Moreover, from a theoretical perspective, the cross-subsidization from non-consumers of soft drinks to consumers resulting from such a tax is not large, and both classes of consumers can be shown to be better off (O’Donoghue and Rabin, 2006). Even if the caloric reduction in soft drinks is offset by whole milk consumption, the nutritional and metabolic advantages of milk versus soda are clear. If such consumption is of plain, reduced-fat milk, these advantages are amplified. Finally, a 1-for-1 substitution of milk for soda on a per volume basis is unlikely, due to milk’s digestibility relative to soda. For these reasons, wide adoption of such excise taxes appears to be good policy. Even if they fail to reduce caloric intake in young people, the quality of those calories will improve.

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