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Why a Soda Tax Is Unlikely to Work: Yours Truly in the Washington Post

Last updated on April 1, 2015

Several European countries also tax sugary drinks, but, as with Mexico, it’s tough to tease out whether, or how much, the taxes affect consumption. Marc Bellemare, assistant professor in the department of applied economics at the University of Minnesota, took a close look at soda sales data (from Euromonitor International, which tracks sales of an astonishing array of food items around the world). He concluded that, depending on how you parse the data, you could claim anything from no impact to about a 2.6 percent decrease.

“In academic parlance, the results are not ‘robust,'” Bellemare says. …

The lack of a clear correlation doesn’t mean sugary drinks aren’t implicated in obesity and disease. … We cannot be sure, not by a long shot, that a tax on soda will result in improved public health.

From a longer column by Tamar Haspel in the Washington Post last week. A few weeks ago, Tamar got in touch with me telling me she had gotten her hands on Euromonitor data for soda sales (supplemented with information about soda taxes in Europe), and she asked me whether I could figure out whether taxes appeared to cause any decrease in soda sales.

The data lent themselves to a nice difference-in-differences analysis, given the variation over time and across countries in the adoption (and, in one instance, disadoption) of sugar taxes. If you buy the parallel trends assumption, at best, I found a 2.6 percent decrease in the logarithm of liters of soda sold per capita; at worst, I found no statistically significant relationship between taxes and soda. When looking at the level (i.e., liters per capita, instead of the log of liters per capita), I also found no relationship. This is what I wrote to Tamar:

In the best-case scenario, I find that taxes decrease sales of soda per capita very, very slightly (on the order of 2.6 percent per year, or about four and half 12-oz cans of soda per capita, which is less than many Americans drink per week). In the worst-case scenario, I find no statistical significance, meaning that for all intents and purposes, the effect is zero.

In academic parlance, the effects are not “robust,” and so I would not stake any money on such policies having an actual effect in practice. This is especially so given that even when significant, the effect is still very small. The reason why I don’t have a unique answer for you is that there are several ways of looking at the problem, and I have accounted for all possible specifications of the equation of interest, given the data you sent me.

The fact that those taxes have no (economically and, often, statistically) significant effect is unsurprising. One, even in the US–which consumes way, way more soda than Europe in per capita terms according to the Euromonitor data–soda represents a minuscule share of the average consumer’s budget. Two, from casual empiricism, the demand for soda strikes me as relatively inelastic; there are few substitutes for sweet, fizzy drinks: club soda does not contain any sugar, fruit juices aren’t fizzy, and many people cannot stand the taste of diet sodas.

(Tamar spoke to a number of other economists for her article. In his post on the topic, Jayson generously referred to those of us quoted in the article as “a slew of top food and agricultural economists,” which I imagine is what it feels like if George Clooney tells you that you’re handsome.)

So, notwithstanding what some people in the public health community seem to to take as an article of faith, taxing soda is unlikely to help with this country’s (or any other country’s, for that matter, given my European estimates) love affair with obesity, though it is certainly likely to contribute to the revenues of governments that levy a tax on soda.

In that sense, it is absolutely no surprise that some politicians seem to love soda taxes:

  1. Cater to your base by looking like you’re doing something for public health (“Think of the children!“)
  2. Make money
  3. ???
  4. Profit!

What’s there not to love?

Generally speaking, much like the obsession with local and organic foods as instruments of public policy, the use of soda taxes often feels to me as a tactic used by some among the wealthy and educated, who are much more likely to abstain from drinking soda,* to wage a proxy culture war on the poor and uneducated, who are more likely to consume soda–but that’s a topic for another, future blog post.

* This describes me, too. The difference is that, based on the evidence at hand, I just don’t believe there is an economic case for soda taxes, though there certainly appears to be fiscal and political cases for them. And with all of that said, I am a firm believer in the claim that sugar is the root of all evil when it comes to obesity!