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More (and Much More Solid) Evidence on Soda Taxes

A few weeks ago, I had a post about the effect of soda taxes on consumer behavior. In that post, I discussed an article by Tamar Haspel in the Washington Post for which I had been interviewed after looking at some European data showing that soda taxes had little to no statistical or economic impact on soda sales. At the time, I wished I’d had more time to investigate the question more deeply. As it turns out, someone else did so:

The typical analysis on the effectiveness of soda taxes relies on price elasticity estimates from static demand models, which ignores consumers’ inventory behaviors and their persistent tastes. This article provides estimates of the relevant price elasticities based on a dynamic demand model that better addresses potential intertemporal substitution and unobservable persistent heterogeneous tastes. It finds that static analyses overestimate the long-run own-price elasticity of regular soda by 60.8%, leading to overestimated consumption reduction of sugar-sweetened soft drinks by up to 57.9% in some cases. Results indicate that soda taxes will raise revenue but are unlikely to substantially impact soda consumption.

This is from an article by Emily Yucai Wang, an assistant professor of resources economics at UMass Amherst, in the very serious RAND Journal of Economics. Just as I found/discussed/speculated/posited for the Washington Post, soda taxes appear to have no effect on consumption. What is more important here is that the author looks at storage, which is an important component of the consumption of soda, and which can have important dynamic effects—after all, soda can be stored for very long periods of time, unlike most staple crops in developing countries.