The ‘soda tax’ is unlikely to make Mexicans lighter or healthier: New evidence on biases in elasticities of demand for soda

Andalón, Mabel and Gibson, John (2018): The ‘soda tax’ is unlikely to make Mexicans lighter or healthier: New evidence on biases in elasticities of demand for soda.

Abstract

Mexico’s ‘soda tax’ has been predicted to reduce average weight of Mexicans by up to three pounds, based on extant estimates of the own-price elasticity of quantity demand for soda of between −1.0 and −1.3. These elasticity estimates from household survey data are exaggerated by not accounting for how consumers adjust quality demanded as price changes. Some estimates also are biased by correlated measurement error. To illustrate these biases we use budget survey data and soda price data for Mexico to estimate demand models that correct for both errors. The corrected own-price elasticity of quantity demand is between −0.1 and −0.4, implying that the soda tax might cut average weight by just half a pound, which is too little to improve population health.

• Item Type: MPRA Paper
• Language: English
• Keywords: Demand, Household surveys, Quality, Price, Soda taxes, Mexico
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis; I - Health, Education, and Welfare > I1 - Health > I10 - General

References

Aguilar, A., Gutierrez E., Seira, E. “Taxing to Reduce Obesity”. 2016. Mimeo downloaded from http://www.enriqueseira.com/uploads/3/1/5/9/31599787/taxing_obesity_submited_aer.pdf on 6 Sept 2016. Arteaga J., Flores D., Luna E. “The effect of a soft-drink tax in Mexico: a time series approach.” MPRA Paper No. 80831 (2017). Baker, P., Jones, A., Thow, A. “Accelerating the worldwide adoption of sugar-sweetened beverage taxes: Strengthening commitment and capacity.” International Journal of Health Policy and Management 6 (2017) 1-5. Barquera, S, Hernandez-Barrera, L., Tolentino, M.L, Espinosa, J., Ng S.W., Rivera, J.A., Popkin, B.M. “Energy intake from beverages Is increasing among Mexican adolescents and adults.” The Journal of Nutrition 138 (2008): 2454-2461. Basu, S., Vellakkal, S., Agrawal, S., Stuckler, D., Popkin, B., Ebrahim, S. “Averting obesity and type 2 diabetes in India through sugar-sweetened beverage taxation: an economic-epidemiologic modeling study.” PLoS Medicine 11.1 (2014): 1-13. Bonilla-Chacín, M., Iglesias, R., Suaya, A., Trezza, C., Macías, C. Learning from the Mexican experience with taxes on sugar-sweetened beverages and energy-dense foods of low nutritional value. Health, Nutrition and Population Discussion Paper, (2016). The World Bank. Briggs, A., Mytton, O., Kehlbacher, A., Tiffin, R., Rayner, M., Scarborough, P. “Overall and income specific effect on prevalence of overweight and obesity of 20% sugar sweetened drink tax in UK: econometric and comparative risk assessment modelling study.” BMJ: British Medical Journal 347 (2013): 1-17. Caro, J., Ng, S., Taillie, L., Popkin, B. “Designing a tax to discourage unhealthy food and beverage purchases: The case of Chile.” Food Policy 71.1 (2017): 86-100. Cawley, J. “An economy of scales: A selective review of obesity's economic causes, consequences, and solutions.” Journal of Health Economics 43.1 (2015): 244-268. Colchero M.A., Salgado J.C., Unar-Munguía M., Hernández-Avila M., Rivera-Dommarco J.A. “Price elasticity of the demand for sugar sweetened beverages and soft drinks in Mexico.” Economics and Human Biology 19.1(2015) 129–137. Colchero M.A., Popkin, B.M., Rivera-Dommarco J.A., Wen Ng, S. “Beverage purchases from stores in Mexico under the excise tax on sugar sweetened beverages: observational study.” British Medical Journal 352 (2016):h6704 http://dx.doi.org/10.1136/bmj.h6704 Colchero, M.A., Rivera-Dommarco, J., Popkin, B.M. and Ng, S. “In Mexico, evidence Of sustained consumer response two years after implementing a sugar-sweetened beverage tax.” Health Affairs 36.3 (2017): 1-7. Cox, T., Wohlgenant, M. “Prices and quality effects in cross-sectional demand analysis.” American Journal of Agricultural Economics 68.4 (1986): 908-919. Deaton, A. “Estimation of own-and cross-price elasticities from household survey data.” Journal of Econometrics 36.1 (1987): 7-30. Deaton, A. “Quality, quantity, and spatial variation of price.” American Economic Review 78.3 (1988): 418-430. Deaton, A. “Household survey data and pricing policies in developing countries.” World Bank Economic Review 3.3 (1989): 183-210. Deaton, A. “Price elasticities from survey data: extensions and Indonesian results.” Journal of Econometrics 44.3 (1990): 281-309. Deaton, A. The Analysis of Household Surveys: A Microeconometric Approach to Development Policy. World Bank Publications, 1997. Dubois, P., Griffith, R., O’Connell, M. How well targeted are soda taxes? mimeo Institute for Fiscal Studies. 2017. Fuentes, H.J., Zamudio, A. “Estimación y análisis de la elasticidad precio de la demanda para diferentes tipos de bebidas en México.” Estudios Económicos 29.2 (2014): 301-316. Friedman, J., Beegle, K., de Weerdt, J., Gibson, J. “Decomposing response error in food consumption measurement: Implications for survey design from a randomized survey experiment in Tanzania” Food Policy 72.1 (2017): 94-111. Gibson, J., Kim, B. “Quality, quantity, and nutritional impacts of rice price changes in Vietnam” World Development 43.1 (2013): 329-40. Gibson, J., Kim, B. “Quality, quantity and spatial variation of price: Back to the bog.” Working Paper 16/10, (2016) Department of Economics, University of Waikato. Gibson, J., Kim, B., 2017. Thirty years of being wrong: A systematic review and critical test of the Cox and Wohlgenant (1986) approach to quality-adjusted prices in demand analysis. Working Paper 17/16, (2016) Department of Economics, University of Waikato. Gibson, J., Romeo, A. “Fiscal‐food policies are likely misinformed by biased price elasticities from household surveys: Evidence from Melanesia.” Asia & the Pacific Policy Studies 4.3 (2017): 405-416. Gibson, J., Rozelle, S. “Prices and unit values in poverty measurement and tax reform analysis.” World Bank Economic Review 19.1 (2005): 69-97. Gibson, J., Rozelle, S. “The effects of price on household demand for food and calories in poor countries: Are our databases giving reliable estimates?” Applied Economics 43.27 (2011): 4021-4031. Grogger, J. “Soda taxes and the prices of sodas and other drinks: Evidence from Mexico.” American Journal of Agricultural Economics 99.2 (2017): 481-498. Hall, K., Sacks, G., Chandramohan, D., Chow, C., Wang, C., Gortmaker, S., Swinburn, B. “Quantification of the effect of energy imbalance on bodyweight.” The Lancet 378.9793 (2011): 826-837. Malik, V., Schulze, M., Hu, F. “Intake of sugar-sweetened beverages and weight gain: a systematic review.” American Journal of Clinical Nutrition 84.3 (2006): 274-288. McKelvey, C. “Price, unit value and quality demanded.” Journal of Development Economics 95.1 (2011): 157-169. Mhurchu, C., Eyles, H., Schilling, C., Yang, Q., Kaye-Blake, W., Genç, M., Blakely, T. Food prices and consumer demand: differences across income levels and ethnic groups. PLoS One 8.10 (2013): 1-12. Powell, L., Chriqui, J., Khan, T., Wada, R., Chaloupka, F. “Assessing the potential effectiveness of food and beverage taxes and subsidies for improving public health: A systematic review of prices, demand and body weight outcomes.” Obesity Reviews 14.2 (2013): 110 128. Prais, S., Houthakker, H. 1955. The Analysis of Family Budgets, New York: Cambridge University Press. Shumway, R., David, G. “Does consistent aggregation really matter?” Australian Journal of Agricultural and Resource Economics 45.2 (2001): 161-194. Urzúa, C. “Evaluación de los efectos distributivos y espaciales de las empresas con poder de mercado en México.” 2008 Mimeo downloaded from http://www.oecd.org/daf/competition/45047597.pdf on 4 September 2016. Valero, J.N. “Estimación de las elasticidades e impuestos óptimos a los bienes más consumidos en México.” Estudios Económicos 21.2 (2006): 127-176. Wang, E. “The impact of soda taxes on consumer welfare: implications of storability and taste heterogeneity.” RAND Journal of Economics 46.2 (2015): 409-441. World Health Organization [WHO]. Fiscal Policies for Diet and Prevention of Noncommunicable Diseases Technical Meeting Report, 5-6 May 2015, Geneva, Switzerland. http://apps.who.int/iris/bitstream/10665/250131/1/9789241511247-eng.pdf Zhen, C., Wohlgenant, M., Karns, S., Kaufman, P. “Habit formation and demand for sugar-sweetened beverages.” American Journal of Agricultural Economics 93.1 (2011): 175-193.