The 'Soda Tax' is Unlikely to Make Mexicans Lighter: New Evidence on Biases in Elasticities of Demand for Soda

Mabel Andalón and John Gibson

No 10765, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Mexico's 'soda tax' has been predicted to reduce average weights by two to four pounds, based on extant estimates of an own-price elasticity of quantity demand for soda of between ?1.0 and ?1.3. These estimates ignore consumer responses on the quality margin and correlated measurement errors. We use Mexican household budget survey data and city-level soda prices to estimate unrestricted demand models that correct for both errors. The corrected own-price elasticity of quantity demand is just ?0.2 to ?0.3, so tax-induced soda price increases might cut average weights by less than one pound, which is too small to improve health.

Keywords: demand; household surveys; quality; price; soda taxes; Mexico (search for similar items in EconPapers)
JEL-codes: D12 I10 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2017-05
New Economics Papers: this item is included in nep-hea
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Citations: View citations in EconPapers (3)

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Working Paper: The 'Soda Tax' is Unlikely to Make Mexicans Lighter: New Evidence on Biases in Elasticities of Demand for Soda (2017)
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