Thursday, July 28, 2011

Are food taxes the solution?

This ground is pretty well-trodden, but a few new projects are calling attention to it once again. Gordon Rausser and Linda Thurstrom have written a working paper summarizing the published links between food taxes and health. They conclude that for a tax to have a significant effect, the tax would have to be large, since food consumption is inelastic. However, there may be distributional effects, so they call for studies looking at the effects of taxes on different subgroups, such as those in ill health, the poor, and different age groups. On the other hand, in Sunday's New York Times, Mark Bittman came to the opposite conclusion: he wants a little less conversation and a little more action. He calls for an increase in taxes to promote health. Michael Roberts has a nice reflection on the subject (can't find a permalink so you'll have to scroll down).

As an academic, I guess it's easy for me to side with the academics, but it really makes sense. A ton of studies on soda, for example (as cited in the first paper above) find that taxes accomplish little as far as discouraging consumption. Too many other factors (habits, convenience, lack of alternatives) affect the take-home price for a small increase to be effective. Further, soda companies are powerful: the city of Baltimore considered a tax last year, but a heavy blitz of anti-"grocery tax" ads hit the airwaves and the proposal died quickly. Economists certainly believe in getting things done by modifying incentives, which a tax would certainly do, but we also believe in doing reality checks to see what we could actually expect. Unfortunately these consumption habits are a tough nut to crack.

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