Fiscal-Food Policies are Likely Misinformed by Biased Price Elasticities from Household Surveys: Evidence from Melanesia

John Gibson and Alessandro Romeo
Authors registered in the RePEc Author Service: John Gibson

Asia and the Pacific Policy Studies from Crawford School of Public Policy, The Australian National University

Abstract: Fiscal-food policies use taxes to alter relative food prices so as to change diets and are suggested for reducing non-communicable diseases in the Pacific. Price elasticity estimates used by advocates of fiscal-food policies are often biased and may make policy makers too optimistic about small taxes on unhealthy food and drink inducing big changes in diets. The bias is illustrated using the example of the demand for soft drinks in a household survey from the Solomon Islands, with further evidence from Papua New Guinea. About one-third of consumer response to soft drink price variation in the Solomon Islands is on the quantity margin, with two-thirds on the quality margin. If the quality response is wrongly treated as a quantity response to price—as in most studies—the price elasticity of soft drink demand is exaggerated by a factor of two in Papua New Guinea and three in the Solomon Islands.

Keywords: demand; household surveys; quality; soft drink taxes; Melanesia (search for similar items in EconPapers)
Pages: 12 pages
New Economics Papers: this item is included in nep-agr and nep-mkt
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Citations: View citations in EconPapers (6)

Published in Asia & the Pacific Policy Studies, Sep 2017, pages 405-416

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Journal Article: Fiscal-Food Policies are Likely Misinformed by Biased Price Elasticities from Household Surveys: Evidence from Melanesia (2017)
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