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The ‘soda tax’ is unlikely to make Mexicans lighter or healthier: New evidence on biases in elasticities of demand for soda

Mabel Andalón and John Gibson ()

MPRA Paper from University Library of Munich, Germany

Abstract: Mexico’s ‘soda tax’ has been predicted to reduce average weight of Mexicans by up to three pounds, based on extant estimates of the own-price elasticity of quantity demand for soda of between −1.0 and −1.3. These elasticity estimates from household survey data are exaggerated by not accounting for how consumers adjust quality demanded as price changes. Some estimates also are biased by correlated measurement error. To illustrate these biases we use budget survey data and soda price data for Mexico to estimate demand models that correct for both errors. The corrected own-price elasticity of quantity demand is between −0.1 and −0.4, implying that the soda tax might cut average weight by just half a pound, which is too little to improve population 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)
New Economics Papers: this item is included in nep-hea and nep-pub
Date: 2018-04-25
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