With a goal to contain the rising obesity epidemic and high rates of diabetes, health authorities have proposed to tax sugar-sweetened beverages. Four cities will be voting November 8, 2016, on whether to tax soda and other
Some proponents say the taxes would raise
prices by exactly the amount of the tax, encouraging consumers to cut
down on soda and improve their health. But research shows that prices might rise by only half that amount -
or even less, says a Cornell University economist who studied a similar
tax imposed in Berkeley, California.
‘Adopting taxes on soda and other sugar-sweetened beverages may be only partially passed on to consumers in the form of higher prices.’
"Our research suggests that these taxes may be only partially passed
on to consumers in the form of higher prices," says John Cawley,
professor of policy analysis and management and of economics. His
research in Berkeley found that prices there rose by only 43.1%
of the tax.
This limited price increase is consistent with consumers being
sensitive to prices, Cawley clarifies. If consumers were insensitive to
price, then suppliers would shift all of the tax to consumers. "So, the
limited price increase resulting from the tax should not be seen as a
failure but as evidence that consumers are responding to the policy,"
The tax in Berkeley was the country's first on sugar-sweetened
beverages for public health purposes. It was seen as a bellwether for
similar taxes now on the November ballot in the California cities of
Albany, Oakland and San Francisco as well as in Boulder, Colorado.
The study also found the closer a store was to an untaxed rival, the
less it passed the taxes on to consumers. This may be due to store
owners being concerned about customers shopping outside of Berkeley to
avoid the taxes, Cawley added. "That may well be a factor for other
city-level taxes as well," he noted.
Cawley's research, "The Pass-Through of Taxes on Sugar-Sweetened
Beverages to Retail Prices: The Case of Berkeley, California," was
published in the Journal of Policy Analysis and Management
. His co-author is David Frisvold of the University of Iowa.
Cawley and Frisvold collected price information on various sizes of
the most frequently consumed sugar-sweetened drinks - Coke, Pepsi,
Mountain Dew, Gatorade, Red Bull and Snapple iced tea - at stores in
Berkeley before and three months after the tax took effect in early
2015. They also collected prices in San Francisco - which did not have a
soda tax - as a control.
The Berkeley tax, which is still in effect, requires soda
distributors pay the city one cent per ounce whenever they deliver soda to
a Berkeley store. That translates to an extra 20 cents for a 20-ounce
bottle, and $1.44 for a 12-pack of 12-ounce cans. As in Berkeley, the
tax in Oakland and Albany, California would be one cent per ounce. The tax
in San Francisco and Boulder would be 2 cents per ounce.
Philadelphia has already passed a 1.5-cent per ounce tax on
sugar-sweetened and also, interestingly, diet drinks. The tax is not as a
public health measure but simply a way to raise revenue. That tax is
slated to take effect January 1, 2017.
Taxes on sugar-sweetened beverages are a step in the right
direction, Cawley said, if the goal is to reduce the societal costs
associated with diet-related health problems such as obesity and
But the design could be improved, he said.
Narrow taxes like the one on soda allow consumers to switch to
untaxed energy-dense foods. A better alternative is a broader tax that
would include all high-calorie, low-nutrition foods, such as candy bars
and cookies. And ideally it would take effect across the country, he
said. "In general, it's harder to avoid a tax when it's nationwide than
when it's just in one city."
He also suggests restricting how people can spend benefits from the
Supplemental Nutrition Assistance Program (SNAP), formerly known as the
Food Stamp Program. Energy-dense foods could be excluded, but people
would have the same dollar benefit to spend on healthier items, he said.
"When we have an obesity epidemic and high rates of diabetes, it
doesn't make sense for a government program to offer free soda," he