A team of economists has concluded that soda taxes serve as a "net good," an assessment based on an analysis of health benefits and consumer behavior. The work, which sees advantages similar to those of long-standing cigarette taxes, also offers policy parameters that it views as more effective than many existing soda taxes.
The analysis, by researchers at New York University, the Wharton School at the University of Pennsylvania, and the University of California, Berkeley, was released today as a National Bureau of Economic Research (NBER) working paper.
"The research is clear that sugary drinks are bad for our health," observe NYU's Hunt Allcott, Wharton's Benjamin Lockwood, and UC Berkeley's Dmitry Taubinsky, the papers' authors. "Our study takes a next step to evaluate the overall economic rationale as to whether we should impose a tax. Using an economic framework, we show that taxing soda generates net benefits to society -- taking into account the health effects, the enjoyment that people get from drinking the drinks they enjoy, the value of the tax revenues, and other factors."
The research estimates that a nationwide soda tax would yield $7 billion in net benefits to society each year.
The research also considers concerns about regressivity.
"We estimate that soda taxes benefit both low- and high-income people," the researchers say. "While low-income people drink more sugary drinks and thus pay more in soda taxes, their health also benefits more from drinking less."
The researchers also find that state-level taxes would be even more effective than city-level taxes, such as those implemented in San Francisco, Philadelphia, and other U.S. cities.
"Soda taxes would yield more benefit at the state level than they would at the city level, both because they cover more people and because buying tax-free soda just outside the city, which some people do, dilutes the benefits of a tax," the authors observe.
Arizona, California, Michigan, and Washington have passed legislation or referenda banning their cities from adopting new soda taxes. The papers' findings suggest that these bans are not economically justified.
Their conclusions on the societal benefits of soda taxes are based on the following:
The work also offers guidelines for making existing soda taxes more effective while acknowledging finding an optimal tax level requires additional study:
The studies, supported by the Alfred P. Sloan Foundation, will appear later this year in the peer-reviewed Quarterly Journal of Economics and the Journal of Economic Perspectives.
Hunt Allcott is an associate professor of economics at New York University and a principal researcher at Microsoft Research. Benjamin B. Lockwood is an assistant professor of economics at the Wharton School at the University of Pennsylvania. Dmitry Taubinsky is an assistant professor of economics at the University of California, Berkeley.
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