Do prices and purchases respond similarly to soft drink tax increases and cuts?
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Do prices and purchases respond similarly to soft drink tax increases and cuts? / Schmacker, Renke; Smed, Sinne.
I: Economics and Human Biology, Bind 37, 100864, 2020.Publikation: Bidrag til tidsskrift › Tidsskriftartikel › Forskning › fagfællebedømt
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TY - JOUR
T1 - Do prices and purchases respond similarly to soft drink tax increases and cuts?
AU - Schmacker, Renke
AU - Smed, Sinne
PY - 2020
Y1 - 2020
N2 - While in January 2012, Denmark increased the long-standing tax on sugary soft drinks, the tax was cut by half in July 2013 and then completely repealed in January 2014. In this study, we examine whether increases and cuts of the soft drink tax lead to similar over- or under-shifting to prices and to similar demand responses. We use longitudinal scanner data of 1,282 Danish households to estimate within-product changes in prices and within-household changes in purchase quantity. The tax hike was overshifted by a factor of 1.6–1.8, while the tax repeal was fully passed through with a factor of 0.9–1.2. On average, consumption was 13.4 percent lower the year after the tax increase compared to the year before. The repeal of the tax was associated with an increase in purchase quantity of 31.0 percent. This is equivalent to price elasticities of −1.3 for both tax hikes and cuts. The results suggest that consumers react similarly to tax cuts compared to tax increases. Furthermore, the increase in purchases following a tax cut has no limiting effect on purchases of other beverages suggesting an increase in the intake of calories. This might have implications for health in countries that consider repealing current taxes on soft drinks.
AB - While in January 2012, Denmark increased the long-standing tax on sugary soft drinks, the tax was cut by half in July 2013 and then completely repealed in January 2014. In this study, we examine whether increases and cuts of the soft drink tax lead to similar over- or under-shifting to prices and to similar demand responses. We use longitudinal scanner data of 1,282 Danish households to estimate within-product changes in prices and within-household changes in purchase quantity. The tax hike was overshifted by a factor of 1.6–1.8, while the tax repeal was fully passed through with a factor of 0.9–1.2. On average, consumption was 13.4 percent lower the year after the tax increase compared to the year before. The repeal of the tax was associated with an increase in purchase quantity of 31.0 percent. This is equivalent to price elasticities of −1.3 for both tax hikes and cuts. The results suggest that consumers react similarly to tax cuts compared to tax increases. Furthermore, the increase in purchases following a tax cut has no limiting effect on purchases of other beverages suggesting an increase in the intake of calories. This might have implications for health in countries that consider repealing current taxes on soft drinks.
KW - Pass-through rates
KW - Policy evaluation
KW - Purchase changes
KW - Soda tax
KW - Soft drink tax
KW - Tax repeal
U2 - 10.1016/j.ehb.2020.100864
DO - 10.1016/j.ehb.2020.100864
M3 - Journal article
C2 - 32145515
AN - SCOPUS:85080141017
VL - 37
JO - Economics and Human Biology
JF - Economics and Human Biology
SN - 1570-677X
M1 - 100864
ER -
ID: 241099411