Would Soda Taxes Really Yield Health Benefits?

October 7, 2010

Some public health advocates call for "soda taxes" as effective interventions that will lower obesity as well as generate tax revenues that can be used to fund public programs aimed at lowering obesity, say Michael L. Marlow and Alden F. Shiers, professors of economics at California Polytechnic State University in San Luis Obispo.

But these taxes are unlikely to significantly lower obesity.

Proponents of soda taxes argue for government intervention because, they say, free markets fail to allocate resources in soda markets efficiently, with the ultimate consequence being too many obese people.  Three assumptions underlie their argument:

First, soda causes obesity.

  • The correlation between soda consumption and obesity rates does not imply that soda consumption causes obesity.
  • Other possibilities include obesity causes soda consumption, no relationship exists between soda consumption and obesity, and soda consumption and obesity are interdependent.
  • Moreover, even if soda consumption did cause obesity, there is no reason to believe that soda is the lone causal factor behind obesity.

Second, consumers lack adequate access to healthier food and beverage choices. 

  • As Marlow and Shiers point out, there are roughly 40,000 food products in the typical U.S. supermarket.
  • It is difficult to argue that this array of products somehow ignores consumer preferences, especially given competitive pressures and technological advances in processing, storage, transportation and communication.

Third, soda drinkers impose external costs on others who pick up some portion of obese people's higher medical costs.  Taxes equal to these external costs would theoretically raise soda prices to levels consistent with efficient consumption levels.  However, it is unlikely that taxes could ever correct for any externality associated with obesity, say Marlow and Shiers.

Source: Michael L. Marlow and Alden F. Shiers, "Would Soda Taxes Really Yield Health Benefits?" Regulation Magazine, Fall 2010.

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