Combined fiscal policies to promote healthier diets: Effects on purchases and consumer welfare

Juan Carlos Caro, Pourya Valizadeh, Alejandrina Correa, Andres Silva and Shu Wen Ng

PLOS ONE, 2020, vol. 15, issue 1, 1-23

Abstract: Taxes on unhealthy foods and sweetened beverages, as well as subsidies to healthy foods, have become increasingly popular strategies to curb obesity and related non-communicable diseases. The existing evidence on the welfare effects of such fiscal policies is mixed and almost uniquely focused on tax schemes. Using the 2016-2017 Chilean Household Budget Survey, we estimate a censored Exact Affine Stone Index (EASI) incomplete demand system and simulate changes in purchases, tax incidence, and consumer welfare of three different policy scenarios: (1) a 5 percentage point additional tax on sweetened beverages (currently taxed at 18%) and a new 18% tax on sweets and snacks, (2) a healthy subsidy by zero-rating fruits and vegetables from the current 19% value-added tax, and (3) a combined (tax plus subsidy) policy. Under full pass-through of these policies, the combined scheme captures the incentives to switch purchases from both single-policy alternatives, resulting in a net welfare gain and subsidy transfer for the average Chilean household. In terms of welfare, low-income households strictly benefit from a combined policy, while high-income households experience a small consumer welfare loss, resulting in re-distributional effects.

Date: 2020
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:plo:pone00:0226731

DOI: 10.1371/journal.pone.0226731

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