Could A Soda Tax Have Perverse Consequences?

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THE STASH JUNE 8, 2009

Could A Soda Tax Have Perverse Consequences?

We learned last month that one of the ways the Congress is considering paying for health care reform is through a tax on "sugar-sweetened beverages."

While a soda tax would no doubt accomplish that, would it also achieve another desirable goal: promote healthier behavior on the part of consumers?

Superficially, you'd think that raising the cost of high-caloric sodas would induce people to consume them less--and maybe shed a few pounds in the process. But a new NBER study suggests that the relationship between such sin taxes and consumer behavior isn't always as predictable as you'd think.  

Looking at data between 2000-2005 from a national survey on adult health, Melayne M. McInnes of the University of South Caroline and Judith A. Shinogle of the University of Maryland report that two types of sin taxes currently in existence--taxes on beer and cigarette--are actually associated with certain less healthy behaviors. In particular, higher sin taxes coincided with a drop in the intensity of physical activity.

On the other hand, another new study by Lisa Powell and Frank Chaloupka of the University of Illinois found that higher vegetable and fruit prices were correlated with higher BMIs (body mass index) for poorer children. So perhaps one way to spend the proceeds from a soda tax would be to subsidize healthier food options for low-income families. 

--Zubin Jelveh

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