Should We Tax Sugar-Sweetened Beverages? An Overview of Theory and Evidence

Hunt Allcott, Benjamin Lockwood and Dmitry Taubinsky

No 25842, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Taxes on sugar-sweetened beverages are growing in popularity and have generated an active public debate. Are they a good idea? If so, how high should they be? Are such taxes regressive? People in the U.S. and some other countries consume remarkable quantities of sugar-sweetened beverages, and the evidence suggests that this generates significant health costs. Building on recent work by Allcott, Lockwood, and Taubinsky (Forthcoming) and others, we review the basic economic principles that determine the socially optimal SSB tax. The optimal tax depends on (1) externalities: uninternalized health system costs from diseases caused by sugary drink consumption; (2) internalities: costs consumers impose on themselves by consuming too many sugary drinks due to poor nutrition knowledge or lack of self-control; and (3) regressivity: how much the financial burden and the internality benefits from the tax fall on the poor. We summarize the empirical evidence about the key parameters affect how large the tax should be. In the theoretical framework of Allcott, Lockwood, and Taubinsky (Forthcoming), our calculations imply that sugar-sweetened beverage taxes are welfare enhancing, and indeed that the optimal nationwide SSB tax rate may be higher than the one cent per ounce rate most commonly used in U.S. cities. Using our theoretical framework, we end by deriving seven concrete implications for optimal SSB tax structure.

JEL-codes: D00 D6 D9 H0 (search for similar items in EconPapers)
Date: 2019-05
New Economics Papers: this item is included in nep-hea, nep-pbe and nep-pub
Note: AG EH LE LS PE POL
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Citations: View citations in EconPapers (73)

Published as Hunt Allcott & Benjamin B. Lockwood & Dmitry Taubinsky, 2019. "Should We Tax Sugar-Sweetened Beverages? An Overview of Theory and Evidence," Journal of Economic Perspectives, vol 33(3), pages 202-227.

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