Effects of a 20% price increase of sugar-sweetened beverages on consumption and welfare in Brazil

Paula Pereda, Maria Alice Christofoletti, Shu Wen Ng, and Rafael Moreira Claro, Ana Clara Duran, Carlos Augusto Monteiro

No 2019_33, Working Papers, Department of Economics from University of São Paulo (FEA-USP)

Abstract: Background: The consumption of sugar-sweetened beverages (SSB) is associated with increased risk of obesity, diabetes and heart disease. In 2016, the World Health Organization recommended fiscal policies aiming at increasing SSB prices by at least 20% to reduce its consumption and the occurrence of these outcomes. Objective: To estimate the effects of a 20% price increase of SSB on consumption and welfare outcomes in Brazil. Design: Data from the 2008-09 National Household Budget Survey (HBS) were used to estimate price and income elasticities of consumption. We propose a two-step procedure. First, we estimate the unconditional price elasticities of food and non-food goods. Second, using a QUAIDS model, we build a system of demand equations for food groups. Welfare effects were estimated based on the change on utility and on the excess burden of the simulated tax policy. Results: We find that a 20% price increase in SSB price would lead to a 16.6% reduction on its consumption. The demand for unhealthy foods (SSB, processed and ultra-processed foods) is expected to decrease by 6.2%. The tax could generate US$ 61.3 million per month in government revenues, and the estimated short-term inefficiencies, or dead-weight losses are US$ 6 million per month. Average households would need to receive US$ 0.29 per week to become welfare neutral after the tax is implemented. Conclusions: Due to the potential high benefits of the policy, the proposed 20% tax might be cost-beneficial in Brazil.

Keywords: Demand system; sugar-sweetened beverages; beverage tax; welfare analysis (search for similar items in EconPapers)
JEL-codes: D12 H20 I18 (search for similar items in EconPapers)
Date: 2019-08-21
New Economics Papers: this item is included in nep-agr
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Citations: View citations in EconPapers (1)

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