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When do fat taxes increase consumer welfare?
Jayson L Lusk1, Christiane Schroeter
1Department of Agricultural Economics, Oklahoma State University, Stillwater, OK 74078, USA. jayson.lusk@okstate.edu
Health Economics
|September 3, 2011
Summary
A fat tax on sugary drinks is unlikely to benefit consumers. Consumers would need to value weight loss at $1500 per pound for the tax to be welfare-enhancing, suggesting other justifications are needed.
Area of Science:
- Health Economics
- Consumer Welfare Analysis
- Public Health Policy
Background:
- Previous fat tax analyses struggle to determine consumer benefits.
- Assessing consumer welfare from such taxes requires a clear empirical framework.
Purpose of the Study:
- To outline a simple method for assessing consumer benefits from fat taxes.
- To determine if a tax on sugary beverages enhances individual consumer welfare.
Main Methods:
- Comparing expenditure on taxed goods to the tax's weight effect.
- Evaluating this ratio against an individual's willingness to pay for weight reduction.
Main Results:
- Empirical calculations indicate a high willingness to pay ($1500/pound) for weight loss is needed for welfare enhancement.
- A tax on sugary beverages is unlikely to be welfare-enhancing under standard assumptions.
Conclusions:
- Soda taxes may not improve individual consumer welfare based on rational choice theory.
- Alternative justifications for such policies may be necessary, potentially outside standard economic rationality.
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