Protecting and Promoting Health Through Taxation: Evidence and Gaps

Lisa M Powell and Frank J Chaloupka

Chapter 3 in Health Taxes:Policy and Practice, 2023, pp 57-86 from World Scientific Publishing Co. Pte. Ltd.

Abstract: We provide evidence of the extent to which health taxes on tobacco, alcoholic beverages, sugar-sweetened beverages (SSBs) and other food and nutrients reduce demand for these products. We open with a conceptual framework that outlines the mechanisms through which health taxes impact consumption and health outcomes, and how substitution and tax avoidance behaviours may affect the net impact of the taxes. We then review empirical evidence on the tax responsiveness of demand based on estimates from both demand models and tax evaluations, showing that higher prices/taxes on products are associated with lower quantity demanded for taxed products. We also evaluate the differential impacts of the health taxes by demographic and socio-economic status (SES), finding that demand for tobacco and sugary beverages is more price sensitive among lower SES populations. Next, we examine the extent to which health taxes may induce substitution to other products and the extent that consumers may undertake explicit tax avoidance behaviours such as cross-border shopping, as these affect the net impact of a given tax. Finally, we review the evidence on the impact of health taxes on health outcomes – i.e., if the taxes translate into improvements in health and reductions in other consumption-related risks. We find that while higher tobacco and alcohol prices/taxes are associated with advantageously reduced health and social outcomes (i.e., lowered levels of tobacco-related cancer and respiratory disease and lowered levels of alcohol-related liver cirrhosis, accidents and violent acts), there is less evidence on the effectiveness of taxes on SSBs and other foods on health outcomes. Overall, the evidence shows that health taxes are effective fiscal measures for reducing the harmful consumption of products such as tobacco, alcohol and SSBs and are an important tool that policymakers can implement to achieve goals of reducing the burden of non-communicable diseases and other consumption-related adverse outcomes.

Keywords: Health Tax; Health Taxes; Tobacco Tax; Alcohol Tax; Sugary Drinks Tax; SSB Tax; Sugar-Sweetened Beverages Tax; Fiscal Policy; Health; Non-communicable Diseases; NCDs; Health Financing; Public Finance; Public Health (search for similar items in EconPapers)
JEL-codes: I1 I15 K32 (search for similar items in EconPapers)
Date: 2023
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