Obesity Tax

REDUCING OBESITY: TAXING CALORIES IN SOFT DRINKS HELPS – BUT NOT BY MUCH

A tax on the calories contained in soft drinks is around 6% more effective at reducing obesity than a general tax on soft drinks – but the effect is only a drop in people’s weight of around 1.6 pounds per year. These are the findings of research by Wei Xiao, presented at the Royal Economic Society’s 2013 annual conference.

The study analyses the buying patterns of 10,000 American households by looking at data on soft drink purchases from supermarket scanners. Based on the calorie content of soft drinks and the medically accepted view that an intake of 6.614 calories leads to a gain in weight of 1 gram, the author simulates the effectiveness of various soft drink tax policies on people’s weight.

The research suggests that a tax that targets the calorie content will be more effective than a universal tax on soft drinks – as some soft drinks are healthier than others. But the author admits that ‘although an obesity tax on soft drinks can cause weight reduction, the effect is small’, adding that even without any dietary changes, ‘a human’s weight can change in the region of one pound in a day’.

Despite only having a small effect on obesity, the findings may still interest policy-makers. Obesity and excess weight is one of the key public health problems in the US and Europe. It is likely to increase the risk of chronic disease and could damage economic productivity. Moreover, the rapid spread of obesity comes with huge economic cost. It is estimated that obesity costs US businesses about $45 billion a year in medical expenses and lost productivity.

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Obesity taxation is proposed to combat obesity epidemic, which is a tax on high caloric but low nutritious foods. Soft drinks are one of the target food categories under debate. A tax proportional to the caloric content is around 6% more effective on weight reduction than a tax on the soft drink category. And a 10% tax proportional to the caloric content could reduce the weight of obese persons in the range of 0.46 to 1.6 pounds in a year.

These are among the findings of new research by Wei Xiao, presented at the Royal Economic Society’s 2013 annual conference, suggesting that the effect of an obesity tax on soft drinks would be small.

Many policy solutions are proposed to combat the obesity epidemic, such as a restriction on advertising, education programmes and other instruments comparable to the smoking reduction campaign. Taxation on soft drinks is among these proposed solutions. Given the current budget-busting recession, the obesity tax has become even more appealing to legislators. However, the proposal of obesity tax has run into stiff opposition from the soft drinks industry.

How effective would the proposed obesity tax on soft drinks be at reducing obesity? How can different taxation schemes achieve different outcomes? And is one policy better than another, in particular, comparing a universal tax rate on the food category with the one applying different rates depending on the content of calories?

This research models consumers’ decisions about soft drink purchase in three stages: the frequency of purchase; the choice between regular and diet drinks; and the purchase quantity. The study then estimates the effect of a tax on each stage of consumers’ purchase decision and the resulting reduction of caloric intakes.

The author finds that the tax proportional to the caloric content is around 6% more effective than the universal tax on reducing caloric intake and weight reduction. Based on the scientific finding that an intake of 6.614 calories leads to a one gram weight gain, it is estimated that, within a year, a 10% tax proportional to the caloric content could reduce the weight of overweight (but not obese) people in the range of 0.15 to 0.46 pounds; could reduce obese people’s weight by 0.46 to 1.6 pounds; and could reduce an extremely obese person’s weight by over 1.6 pounds.

Considering that a human’s weight can change in the range of one pound in a day, the author argues that the effect of an obesity tax on soft drinks is small.

ENDS


Notes for editors:

‘The effectiveness of obesity taxation’ by Dr Wei Xiao

Wei Xiao is an economist at the Competition Commission, United Kingdom. The views expressed in the paper are those of the author and not necessarily those of the Competition Commission.

Contact:

Wei Xiao: +44 (0)7841 872045 (wei.xiao@cc.gsi.gov.uk)

RES media consultant Romesh Vaitilingam: +44 (0) 776 866 1095 romesh@vaitilingam.com
@econromesh

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