Fat tax

Angel, Jimmy, Michaels, Ulysses

If the price for healthy juice and soft drinks are the same, which would you choose?

If there's increased price for soft drinks, what would you choose then?

Pigovian tax

A Pigovian tax is a tax on any market activity that generates negative externalities.

Social cost with tax

Fat tax

A fat tax is a tax or surcharge that is placed upon fattening food, beverages or on overweight individuals.

Fast food

Mechanism

Numerous studies suggest that as the price of a food decreases, individuals get fatter.

Fat Simpson

Effects

Effects on public health

Effects on public health:

(1) Taxing only the principal sources of dietary saturated fat is unlikely to reduce the incidence of cardiovascular disease because the reduction in saturated fat is offset by a rise in salt consumption.

(2) Taxing unhealthy foods, defined by SSCg3d score, might avert around 2300 deaths per annum, primarily by reducing salt intake.

(3) Taxing a wider range of foods could avert up to 3200 cardiovascular deaths in the UK per annum (a 1.7% reduction).

Taxing foodstuffs can have unpredictable health effects if cross-elasticities of demand are ignored. A carefully targeted fat tax could produce modest but meaningful changes in food consumption and a reduction in cardiovascular disease.

[research in 2007]

Effects on working

Effects on marketing

Effects on marketing:

Economists agree that government intervention in a market is warranted when there are market failures that result in less than optimal production and consumption. Several market failures exist for sugar-sweetened beverages. First, many persons make consumption decisions with imperfect information, failing to fully appreciate the links between consumption and health consequences. These decisions are likely to be further distorted by the extensive marketing that can raise the perceived benefits of consumption. A second failure results from time-inconsistent preferences (decisions that provide short-term gratification but long-term harm). This problem is exacerbated for children and adolescents who place a higher value on present satisfaction while more heavily discounting future consequences. So if government set up the fat tax, it may help to solve these market fails.

Effects on governments

Problems

The mechanism may not work as expected.

What products should be targeted?

Another problem is about what products fat tax should target. This must be done with care, because a carelessly chosen food tax can have surprising and perverse effects.

For instance, saturated fat and salt are substitutes. Consumption patterns suggest that taxing saturated fat would induce consumers to increase their salt intake, thereby putting themselves at greater risk for cardiovascular death.

Another reason for us to choose food carefully is that there are in fact not much studies about what food has strong association with obesity. Current proposals frequently single out sugar-sweetened drinks as a target for taxation. Cross-sectional, prospective, and experimental studies have found an association between obesity and the consumption of sugar-sweetened drinks. However, experimental studies have not always found an association, and the size of the effect can be very modest.

Fat tax can be burdensome for the poor.

Fat tax

Pigovian tax

Fat tax

Mechanism

Effects

Problems

Thank you!