Fat Taxes: Big Money for Small Change

Hayley H. Chouinard, David E. Davis (), Jeffrey T. LaFrance and Jeffrey Perloff
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Hayley H. Chouinard: Washington State University
Jeffrey T. LaFrance: University of California, Berkeley

Forum for Health Economics & Policy, 2007, vol. 10, issue 2

Abstract: In an attempt to improve the nation's health, many U.S. policy makers have or are considering imposing taxes on the fat in food. Dairy products constitute a large portion of at home fat consumption of particularly harmful types of fat, and nearly all U.S. households consume these products. We estimate a demand system for dairy products, which we use to simulate substitution effects among dairy products and the welfare impacts of fat taxes on various consumer groups. We find that even a 10 percent ad valorem tax on the percentage of fat would reduce fat consumption by less than a percentage point. Given that the demand for most dairy products is inelastic, a fat tax is an effective means to raise revenue. However, these fat taxes are unattractive because they are extremely regressive, and the elderly and poor suffer much greater welfare losses from the taxes than do younger and richer consumers.

Keywords: equivalent variation; fat tax; regressive (search for similar items in EconPapers)
Date: 2007

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Persistent link: http://EconPapers.repec.org/RePEc:bpj:fhecpo:v:10:y:2007:i:2:n:2

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