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

Mabel Andalón and John Gibson

Working Papers in Economics from University of Waikato

Abstract: Mexico’s one peso per liter tax on sugar-sweetened drinks has been predicted to reduce average weight of Mexicans 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 elasticity estimates ignore consumer responses on the quality margin and are biased by correlated measurement errors. We combine Mexican household budget survey data with city-level soda price data to estimate unrestricted demand models that allow consumer responses on both the quality and quantity margins. If methods from previous Mexican studies are used, the own-price elasticity of quantity demand for soda is between -1.2 and -1.3 but is just -0.2 to -0.3 if more appropriate methods are used. If the corrected elasticities are used, tax-induced soda price increases might cause weight reductions of less than one pound, which is too small to make much difference to 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: 31 pages
Date: 2017-05-11
New Economics Papers: this item is included in nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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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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Persistent link: https://EconPapers.repec.org/RePEc:wai:econwp:17/07

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