Soda’s empty calories are public enemy number one in the fight against obesity, and taxes on sugary drinks are an increasingly popular tool among local governments hoping to curb consumption.
State and federal taxes on tobacco and alcohol have helped reduce consumption; local governments are simply assuming a soda tax will work in the same way. The idea is that making soda cost more will encourage consumers to drink less of it. But that only happens if retailers pass along the added cost to their customers — something that doesn’t always happen.
For instance, Berkeley, California, was the first city in the U.S. to approve a soda tax on distributors, a one-cent-per-ounce tax that was instituted in March 2015. But our research estimated that this tax reduced calorie intake among Berkeley soda drinkers by only a few calories per day. We found that much of the cost of the tax is not being passed along to consumers, and consumption is not significantly dropping.
Fewer than half of supermarkets changed the price of soda in response to the tax, and prices at chain drugstores did not change at all; neither did consumption. On average, about 20% of the tax was passed on to supermarket consumers. Though there is some evidence that the tax reduced supermarket soda consumption, these effects are not robust — we cannot be sure they even exist. In addition, we estimate that half of the reduced consumption we found is offset by increased consumption at a nearby supermarket that is not subject to the tax.
To evaluate outcomes in Berkeley relative to what would have happened if no tax had been imposed, we compared Berkeley with other, similar locations that don’t have a soda tax. We used Nielsen scanner data from 2013 to 2015 to observe millions of prices before and after the tax went into effect.
We compared price and consumption changes for the seven stores in Berkeley with dozens of California stores not in the Bay Area and dozens more outside the state, matching stores based on price and quantity trends before the tax was implemented. It was important to go far afield for a suitable control group, because stores near Berkeley could be affected by the strategic responses to the tax of distributors, retailers, or consumers.
It is often assumed that the success of state and federal taxes on tobacco and alcohol can be replicated in local taxes for soda. But city taxes are different from statewide and national taxes. A city soda tax is easy to avoid if consumers can readily purchase soda outside the city, as they can in Berkeley, where most workers travel outside the city for their jobs.
Soda is also different from tobacco and alcohol, and sold differently. Many consumers regularly purchase soda as part of their weekly grocery shopping, and retailers facing a city soda tax likely worry about losing not just soda sales but also sales on the entire shopping baskets of many of their customers who prefer one-stop shopping and go elsewhere to find cheap soft drinks. We found that chain retailers like to charge the same prices across all of their stores, so they may not change prices in response to a tax that impacts only some of them.
Retailers also like to charge the same price for similar products, like diet soda and regular soda, but the Berkeley tax only affected regular soda. Thus retailers may choose to absorb the cost of the tax on regular soda in order to keep the price for both diet and regular versions the same. Prices of store brands in particular were completely unaffected by the tax.
Other studies have found different results, including that stores pass on more of the cost of the tax to consumers, as lawmakers intended. But some of them used single snapshots of prices before and after the tax, and so could mistake standard variations in pricing — for instance, those due to promotions — with changes in average prices due to the tax. They also sampled prices of only select products. Another study used scanner data for local stores recently bought by a national chain. These studies relied on comparisons to nearby stores that may have been affected by the tax. We used comprehensive data including millions of observations across hundreds of days for the full set of products.
Policy makers can’t assume these taxes will work the same way in every location. Since the Berkeley tax was introduced, similar taxes have since been introduced in larger cities, such as Philadelphia and Chicago, with different socioeconomic profiles. It may be that their residents cannot as easily avoid the tax by shopping outside the city. This might cause retailers to make different decisions about whether to pass on price increases. And if prices are set so as to be consistent within large areas, taxes in larger cities or state taxes may be more effective in raising retail prices and curbing consumption of sugary beverages.
If consumption doesn’t drop, the soda tax may be ineffective in improving health. And even if it generates new revenue for the municipality, those revenue gains could be lost to declining sales if the tax prompts people to shop outside the city.
from HBR.org http://ift.tt/2qKFhXA
