The effects of soft drink taxes on child and adolescent consumption and weight outcomes

Abstract

Childhood and adolescent obesity is associated with serious adverse lifetime health consequences and its prevalence has increased rapidly. Soft drink consumption has also expanded rapidly, so much so that soft drinks are currently the largest single contributors to energy intake. In this paper, we investigate the potential for soft drink taxes to combat rising levels of child and adolescent obesity through a reduction in consumption. Our results, based on state soft drink sales and excise tax information between 1989 and 2006 and the National Health Examination and Nutrition Survey, suggest that soft drink taxation, as currently practiced in the United States, leads to a moderate reduction in soft drink consumption by children and adolescents. However, we show that this reduction in soda consumption is completely offset by increases in consumption of other high-calorie drinks.

Introduction

While soft drink taxes have been used for decades as a way to raise revenues, lately there have been an increasing number of proposals to considerably increase these taxes in order to combat the rapidly growing obesity epidemic in the United States. These proposals have often framed soda taxation as a “sin tax” and made comparisons between soft drink taxation and cigarette taxation, which has both lowered tobacco consumption and raised considerable revenues. The price elasticity for soda is estimated to range between −0.8 and −1.0 (Andreyeva et al., 2010), which indicates that further taxation could lead to substantial consumption reduction. Additionally, soft drink revenues in the United States are approximately $70.1 billion per year, suggesting a relatively large tax revenue potential, even accounting for the drop in consumption from a soda tax (Sicher, 2007); in comparison tobacco revenues are approximately $93.1 billion per year (Tobacco-NAFTA Industry Guide, 2009). Thus soft drink taxation could improve health by lowering consumption, as well as generate substantial revenues to relax government budget constraints and could potentially be used for further obesity prevention or reduction. However, the potential behavioral responses to increasing soda taxes have not been fully examined. There is relatively weak information on the tax elasticity on consumption of soft drink taxes, and, importantly, the substitution patterns between soft drinks and other (potentially high calorie) beverages has not been adequately explored in this context. Thus soda taxes could have unintended consequences and may be an ineffective “obesity tax”.

There are multiple examples documenting how behavioral responses to public policies can counteract the intent of the policies or lead to unintended consequences. One of the best known examples in the economics literature is an evaluation of a set of automobile safety regulations in the late 1960s, where Peltzman (1975) shows that drivers responded to increased safety regulations by driving faster, which completely offset any reductions in highway fatalities. More recently, Adams and Cotti (2008) show that smoking bans in bars have lead to increases in fatal accidents due to an increase in the distance driven to bars that allow smoking. Adda and Cornaglia (2010) find that smoking bans increase the exposure of non-smokers to tobacco smoke as a result of the relocation of smokers away from bars and restaurants. There is also some evidence documenting an unintended rise in obesity and weight due to smoking bans (Fletcher, 2009) and higher cigarettes taxes, although there is mixed evidence on taxes (Chou et al., 2004, Chou et al., 2006, Gruber and Frakes, 2006, Baum, 2009). Courtemanche (2009) seeks to harmonize these disparate findings and has shown a counterintuitive reduction in obesity following cigarette taxation, where the proposed behavioral mechanisms are through changes in exercise and food consumption. Additionally, Evans and Farrelly (1998) find that smokers respond to higher cigarette taxes by smoking cigarettes with higher tar and nicotine content. Similarly, Adda and Cornaglia (2006) find that smokers adjust their behavior to smoke more intensely in response to higher taxes. Finally, recent theoretical and simulation research by Schroeter et al. (2008) shows there are plausible scenarios where taxes on certain types of food (e.g. food away from home) could lead to increases in body weight simply due to substitution among types of food. Likewise, soda taxes could cause substitution to other, high-calorie beverages and increase or have no effect on net caloric intake. In the extreme, these potential substitution patterns could result in a case where individuals consume no soda but offset soda consumption with other high-calorie beverages, such as fruit juice, juice drinks, or whole milk. The impact of these behavioral responses would be no tax revenues as well as no weight reduction and the policy would accomplish neither of its proposed goals.

In this paper we combine newly collected soft drink tax data between 1989 and 2006 with the restricted-access version of the nationally representative National Health Examination and Nutrition Survey (NHANES) in order to examine the effects of soft drink taxes on child and adolescent soft drink consumption, substitution patterns, and weight outcomes. We use standard empirical specifications from the cigarette taxation literature (Chaloupka and Warner, 2000), including year and state fixed effects, and conduct a series of robustness checks to increase confidence in the results. Overall, we find evidence of moderate reductions in soft drink consumption from current soda tax rates. However, we also show that reductions in calories from soda are completely offset by increases in calories from other beverages. Thus, we find that, as currently practiced, soda taxes do not reduce weight in children and adolescents and is, therefore, likely an ineffective “obesity tax”. These results suggest that public health policymakers should consider behavioral responses when crafting policies to reduce obesity.