Consumer demand for and effects of tax on sparkling and non-sparkling bottled water in the United States

Wen Zheng, Senarath Dharmasena, Oral Capps and Ramkumar Janakiraman
Authors registered in the RePEc Author Service: Oral Capps, Jr. and ORAL CAPPS Jr.

Journal of Agribusiness in Developing and Emerging Economies, 2018, vol. 8, issue 3, 501-517

Abstract: Purpose - The purpose of this paper is to investigate the factors affecting consumer demand for and the effects on tax on sparkling and non-sparkling bottled water in the USA. Design/methodology/approach - Using nationally representative data from 62,092 households and tobit econometric procedure, conditional and unconditional factors affecting the demand for sparkling and non-sparkling bottled water were estimated. Findings - The own-price elasticity of demand for sparkling and non-sparkling bottled water is −0.664 and −0.229, respectively. Coffee, fruit drinks, whole milk and tea are substitutes for non-sparking bottled water. Non-sparking bottled water, coffee, fruit drinks and whole milk are substitutes for sparking bottled water. Household income, race, region and presence of children significantly affect the demand for bottled water. A 10 percent increase in price due to a tax on bottled water decreased plastic use by 50 grams per household per year. This is equivalent to saving 9.5m pounds of plastic annually. Research limitations/implications - Data used in this analysis only captured at-home consumption of bottled water by US households. While tax on bottled water may reduce the consumption of bottled water, it may increase the consumption of competitive beverages such as carbonated soft drinks or fruit drinks. Although the use of plastic with regards to water bottles may go down as a result of the tax, the plastic consumption could go up with regards to consumers’ increased purchase of other beverages. This might contribute net increase plastic bottle consumption, undermining the effects of a bottled water tax. Originality/value - To the best of the authors’ knowledge, this study is the first to look at demand and tax aspects with regards to disaggregated bottled water products.

Keywords: Tobit model; Bottled water tax; Nielsen Homescan Panel; Non-sparkling bottled water; Sparkling bottled water (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jadeep:jadee-09-2017-0089

DOI: 10.1108/JADEE-09-2017-0089

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