Economists find net benefit in soda tax
A team of economists has concluded that soda taxes serve as a “net good,” an assessment based on an analysis of health benefits and consumer behavior.
A team of economists has concluded that soda taxes serve as a “net good,” an assessment based on an analysis of health benefits and consumer behavior. The work, which sees advantages similar to those of long-standing cigarette taxes, also offers policy parameters that it views as more effective than many existing soda taxes. The research estimates that a nationwide soda tax would yield $7 billion in net benefits to society each year.
The analysis, by researchers at New York University (NYU), the Wharton School at the University of Pennsylvania, and the University of California, Berkeley, was released as a National Bureau of Economic Research (NBER) working paper. The study will appear later this year in the peer-reviewed Quarterly Journal of Economics and the Journal of Economic Perspectives.
“The research is clear that sugary drinks are bad for our health,” wrote the researchers. “Our study takes a next step to evaluate the overall economic rationale as to whether we should impose a tax. Using an economic framework, we show that taxing soda generates net benefits to society—taking into account the health effects, the enjoyment that people get from drinking the drinks they enjoy, the value of the tax revenues, and other factors.”
The paper also offers the following guidelines for making existing soda taxes more effective while acknowledging finding an optimal tax level requires additional study:
- Taxes should scale with the amount of sugar in a drink, not the volume of liquid. They calculate that the net benefits would be much larger at a tax rate of 0.5 cents per gram of sugar than at the standard 1 cent per ounce of liquid.
- Implementing taxes at the state or national level, instead of the current smattering of city-level taxes, would be more beneficial as it would diminish “cross-border shopping.”
- The existing tax in Philadelphia includes diet drinks, even though the health harms from diet drinks are not clearly established, posing a financial burden while not offering a robust health benefit. “Soda taxes should be limited to sugary drinks, where the health evidence is clearer,” wrote the researchers.
- The analysis shows that the standard 1-cent-per-ounce tax rate might be too low for a state-level tax to yield health and economic benefits and might be too high for a city-level tax in places with substantial cross-border shopping. The paper’s authors determined that this issue needs more research because the estimates involve a number of assumptions.