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  5. Should We Tax Sugar-Sweetened Beverages? An Overview of Theory and Evidence

Should We Tax Sugar-Sweetened Beverages? An Overview of Theory and Evidence

  • Hunt Allcott
  • Benjamin B. Lockwood
  • Dmitry Taubinsky
Journal of Economic Perspectives
vol. 33, no. 3, Summer 2019
(pp. 202-27)
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Abstract

Taxes on sugar-sweetened beverages are growing in popularity and have generated an active public debate. Are they a good idea? If so, how high should they be? Are such taxes regressive? People in the United States and some other countries consume remarkable quantities of sugar-sweetened beverages, and the evidence suggests that this generates significant health costs. Building on recent work, we review the basic economic principles that determine the socially optimal sugar-sweetened beverage tax. The optimal tax depends on (1) externalities, or uninternalized health system costs from diseases caused by sugary drink consumption; (2) internalities, or costs consumers impose on themselves by consuming too many sugary drinks due to poor nutrition knowledge and/or lack of self-control; and (3) regressivity, or how much the financial burden and the internality benefits from the tax fall on the poor. We summarize the empirical evidence about the key parameters that determine how large the tax should be. Our calculations suggest that sugar-sweetened beverage taxes are welfare enhancing and indeed that the optimal sugar-sweetened beverage tax rate may be higher than the 1 cent per ounce rate most commonly used in US cities. We end with seven concrete suggestions for policymakers considering a sugar-sweetened beverage tax.

Citation

Allcott, Hunt, Benjamin B. Lockwood, and Dmitry Taubinsky. 2019. "Should We Tax Sugar-Sweetened Beverages? An Overview of Theory and Evidence." Journal of Economic Perspectives, 33 (3): 202-27. DOI: 10.1257/jep.33.3.202

Additional Materials

JEL Classification

  • H25 Business Taxes and Subsidies including sales and value-added (VAT)
  • H71 State and Local Taxation, Subsidies, and Revenue
  • I12 Health Behavior
  • I18 Health: Government Policy; Regulation; Public Health
  • L66 Food; Beverages; Cosmetics; Tobacco; Wine and Spirits
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