Fiscal measures to promote healthier choices: an economic perspective on price-based interventions

Non-communicable diseases strongly linked to lifestyle factors create an increasing burden of disease. Fiscal interventions (tax and subsidy) are one approach to improving lifestyles, but their effective design might be improved.

Conventional economic theory suggests that fiscal interventions are only used to correct prices for externalities (costs or benefits imposed on others). These can be difficult to calculate accurately. Fiscal interventions operate by altering the prices that consumers face. Price increases are predicted to reduce demand, and the size of the effect is measured by the price elasticity. Tax changes may not translate directly into price changes, however.

There is strong evidence for the effectiveness of taxation in relation to reducing tobacco and alcohol consumption and resulting harms. There has been less evaluation of taxation in relation to other unhealthy behaviors or of subsidies to promote healthy behaviors.

Fiscal levers have been used as interventions to improve health rather than for market correction. Taking account of behavioral insights may improve the design of fiscal interventions and combining interventions may increase effectiveness.

Both types of intervention have a role in improving health, but there may be challenges in promoting uptake of healthy behaviors.