How to tax sugary drinks

SUGAR TAXES are on a high. Around 40 countries and seven American cities have started to tax sugary drinks, mostly in the past few years. Supporters say such levies compensate for the costs imposed on health services by higher rates of obesity, diabetes and heart disease. They might also help short-termist buyers avoid the long-term consequences of sugary indulgences. Opponents counter that such levies are a fun-killer, souring people’s pleasure, and regressive, because poorer people spend a bigger share of their incomes on soft drinks.

Two working papers published on May 20th seek to help policymakers find the sweet spot. Hunt Allcott of New York University, Benjamin Lockwood of the University of Pennsylvania and Dmitry Taubinsky of the University of California, Berkeley, compute the “optimal” tax rate that maximises social well-being, taking into account differences in consumers’ income and behavioural biases.

Consumer data show that a soda tax does indeed have regressive effects. American households earning less than $10,000 a year buy twice as much sugary drink as those earning $100,000. Weighed against that, the gap between desired and actual consumption is wider for poorer people than it is for richer ones. The authors surveyed households to gauge their knowledge of sweet drinks’ nutritional content and how much...



via The Economist: Finance and economics Business Feeds

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