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oughly one-third of U.S. adults are clas-sified as obese, which is defined as hav-ing a body mass index of 30 or higher.Obesity rates for most all age and gendergroups exceed 30 percent, with men aged20 to 39 years being the lone exception.Obesity is especially prevalent among
minorities; African-Americans have a 51 percent higher preva-lence of obesity, and Hispanics have 21 percent higher obesi-ty prevalence than whites.
Obesity has become a major public health concern, givenits association with chronic conditions that include diabetes,hypertension, high cholesterol, stroke, heart disease, certaincancers, and arthritis. Excess mortality stemming primarilyfrom cardiovascular disease and diabetes is also believed to beassociated with higher grades of obesity. Researchers at theCenters for Disease Control and Prevention in Atlanta esti-mate that obesity now accounts for 9.1 percent of all medicalspending — $147 billion in 2008.
Various factors are believed to promote rising obesity rates,but the hypothesized relationship between “nutritively sweet-ened beverages” (NSBs) and obesity has increasingly becomethe focus of attention. Some public health advocates call forPigouvian taxes (see “Much Ado about Pigou,” Spring 2010)on these beverages, often referred to as “soda taxes,” as effec-tive interventions that will lower obesity as well as generatetax revenues that can be used to fund public programs aimedat lowering obesity.
In this article, we discuss the economic theory and empir-ical evidence of using soda taxes to lower obesity. We concludethat these taxes are unlikely to significantly lower obesity, andthat they promote many unintended consequences that mayadversely affect public health. Higher tax revenues stemmingfrom soda taxes are also likely to be used to expand govern-
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Michael L. Marlow and Alden F. Shiers are professors of economics at California
Polytechnic State University in San Luis Obispo.
Taxes on sugary beverages would do little to lower obesity.
Would Soda Taxes Really Yield
Health Benefits?BY MICHAEL L. MARLOW AND ALDEN F. SHIERS
California Polytechnic State University
ment programs other than those associated with controllingobesity, much as cigarette tax revenue now does.
FLAWS IN THE ECONOMIC CASE FOR SODA TAXES
Proponents of soda taxes argue for government interventionbecause, they say, free markets fail to allocate resources in sodamarkets efficiently, with the ultimate consequence being toomany obese people. Three assumptions underlie their argument:
n Soda causes obesity.n Consumers lack adequate information and beveragechoices.n Soda drinkers impose external costs on others whopick up some portion of obese people’s higher med-ical costs.
Let us consider each of these assumptions.
Soda causes obesity? The correlation between soda con-sumption and obesity rates does not imply that soda con-sumption causes obesity. Other possibilities include obesitycauses soda consumption, no relationship exists betweensoda consumption and obesity, and soda consumption andobesity are interdependent. Moreover, even if soda con-sumption did cause obesity, there is no reason to believethat soda is the lone causal factor behind obesity; other like-ly candidates include lack of exercise, age, genetics, con-sumption of other high-calorie foods and beverages, andmany other factors.
Tax advocates claim that soda consumption causes obesi-ty, but evidence demonstrating this casual link is weak atbest. A 2006 review article by Vasanti Malik et al. of the rela-tionship between the consumption of sugar-sweetened bev-erages and obesity found 16 studies indicating a significantpositive relationship between consumption and body massindex, 10 studies that did not find a significant positive rela-tionship, and four studies with mixed results. A 2007 literature
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review by Lenny Vartanian etal. found eight studies with asignificant positive relation-ship, 15 studies with no sig-nificant positive relationship,and two studies with mixedresults.
Although the authors ofthese surveys conclude thatthe evidence supports theview that soda consumptioncauses obesity, we suggest theevidence remains less thanclear. Most articles in theirsurveys demonstrate correla-tion and not causation, andignore confounding factorssuch as age, exercise, genetics,and other factors that proba-bly affect body weight. TheMalik survey acknowledgesthis point:
Overall, results from ourreview support a linkbetween the consumptionof sugar-sweetened bever-ages and the risks of over-weight and obesity.However, interpretation ofthe published studies iscomplicated by severalmethod-related issues,including small sample size,short duration of follow-up,lack of repeated measuresof dietary exposures andoutcomes, and confoundingby other diet and lifestylefactors.
A recent commentary byDavid Allison and RichardMattes in JAMA: The Journalof the American MedicalAssociation acknowledges thissame point:
Given current evidence, lit-tle can be concluded withconfidence beyond the factthat requiring individuals to drink large amounts of NSBscauses greater weight gain than not doing so. Randomizedcontrolled trials of NSB consumption reduction have beenapplied effectiveness studies rather than rigorously controlledefficacy studies. Only the latter ensures fidelity of the inter-vention.
The authors conclude that much of the research and subsequentnews reports surrounding the issue have been extensively influ-enced by multiple biases that have eroded the reporting ofobjective science on this important public health matter.
Unempowered consumers? Some soda tax advocates claimthat consumers drink too much soda as a result of inadequateaccess to healthier food and beverage choices. But there areroughly 40,000 food products in the typical U.S. supermar-ket. It is difficult to argue that this array of products some-how ignores consumer preferences, especially given compet-itive pressures and technological advances in processing,storage, transportation, and communication.
The growing variety of food products reflects an industrythat adapts to consumer preferences regarding health-relat-M
ORGAN B
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ed choices. Between 1987 and 2004, 35,272 new food productslabeled “low fat” or “no fat” were introduced into the U.S. foodmarket. That led researchers at the U.S. Department ofAgriculture to conclude that unhealthy food consumptionpatterns do not stem from a market failure to supply healthyfood and beverage choices.
While regular soda accounts for roughly 70 percent ofU.S. soda sales, diet soda sales have been growing rapidly.Some forecasters predict that diet sales will eventually over-take regular soda. It thus seems that an active private marketexists in providing “healthy” choices to consumers, which sug-gest that there is little need for government intervention intosoda markets.
Externalities? Soda tax advocates argue that negative exter-nalities — external costs not fully accounted for in markets —indicate a market failure in which too much soda is con-sumed. Externalities are argued to exist because consumerswho become obese will not fully pick up the higher medicalcosts associated with their obesity. Taxes equal to these exter-nal costs would theoretically raise soda prices to levels con-sistent with efficient consumption levels.
However, it is unlikely that taxes could ever correct for anyexternality associated with obesity. The problem with theexternality argument is that, even if obesity raises health carecosts of the obese, this externality should be corrected by hav-ing health insurers impose surcharges on obese insureds thatreflect the additional costs. Few criticize surcharges imposedby auto insurance firms on drivers with drunk driving records,so why not correct for higher costs associated with obesitythrough insurance premiums?
Unfortunately, federal health care legislation passed ear-lier this year severely reduces or eliminates differentialhealth insurance pricing. The legislation requires insur-ance companies to provide coverage for preventive healthservices, which include obesity screening and nutritionalcounseling. The legislation does not require obese peopleto pay more for insurance, but provisions could possiblyallow insurers to charge premiums to people with “lifestylerisk factors” such as tobacco use. It remains doubtful thatobesity will be considered a lifestyle risk, however, given thelegislation’s focus on obesity screening and nutritionalcounseling. Moreover, expected eliminations of pre-existingexclusion clauses that previously allowed insurers to denycoverage to obese individuals and those with past bariatricsurgery would reinforce the view that obesity is not alifestyle risk factor that should be reflected in higher insur-ance premiums.
Still, it remains unclear that soda consumption causesobesity, or that it is the sole causal factor behind obesity.And even if it is, the sensible policy would be to alter healthinsurance premiums to allow for obesity risk premiums, nota Pigouvian tax on soda. Such reform would not rely on thefalse premise that soda consumption is the lone causal factorbehind obesity, as such a risk premium would “tax” bodyweight, which is the essential problem that soda tax advocatesclaim they are interested in controlling. Yet we are not aware
of any soda tax advocate who also supports adjusting healthinsurance premiums.
Finally, even if obesity shortens lives, economic theoryindicates that obesity reflects a positive externality ratherthan a negative one. That is, external benefits associated withobesity are not fully accounted for in markets since obese indi-viduals collect less from Medicare and Social Security overtheir shorter lifetimes. Kip Viscusi has estimated that smok-ers “save” taxpayers roughly 23¢–32¢ for each pack of ciga-rettes they smoke because of reduced social insurance costs— in addition to excise taxes already levied on cigarettes. Arecent paper by K. McPherson analyzing United Kingdom datafound that, although annual health care costs are highest forobese people earlier in life (until age 56 years), and are high-est for smokers at older ages, the ultimate lifetime costs arehighest for the healthy (nonsmoking, non-obese) people.McPherson finds that life expectancy from age 20 is reducedby five years for obese people and seven for smokers. The con-sequence is that healthy people live to incur greater medicalexpenditure on average, more than compensating for the ear-lier excess costs related to obesity or smoking.
Non-obese individuals thus receive external benefits inthe form of additional public resources. If we were to followsoda tax advocates’ thinking, then we should in fact subsidizesoda consumption so as to encourage it. Despite tax advocates’fondness for taxing negative externalities, they never seem asanxious to correct positive externalities.
PIGOUVIAN TAXES IN PRACTICE
Even if tax advocates are correct about soda consumptioncausing so many problems, it is unlikely that soda taxes wouldrectify the externality. The distance between theory and prac-tice in the real world is great enough to warrant much skep-ticism over the ability of policymakers to calculate the “correct”tax and then implement it in a world where politics and spe-cial interests have vested interests in designing tax codes.
Policymakers must legislate “correct” taxes to truly correctexternalities. Since it remains unclear that soda consumptioncauses obesity or whether it reflects negative or positive exter-nalities, the possible range of “correct” soda taxes lies betweenpositive, zero, and negative values. Thus, it is unclear if obesi-ty should be taxed, subsidized, or simply left alone, althoughtax advocates assume it should be taxed. Even if they are cor-rect, the probability that policymakers know the correct tax isslim to none, thus leading to further possibilities that the taxis set too high, causing further erosion of resource efficiency.
Economic theory also indicates that, if there are negativeexternalities, taxes should vary over different beverages aswell as different groups of consumers. Studies imply thatthe effects of NSBs on obesity differ for different types ofdrinks and, because different racial/ethnic groups have dif-ferent preferences, that taxes should vary between groups. Asnoted above, the prevalence of obesity is highest for non-Hispanic blacks, followed by Hispanics, and then non-Hispanic whites. In addition, consumption data reveal thatwhite persons consume more carbonated soft drinks thanother race/ethnic groups, and that blacks consume more
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high-calorie fruit drinks and ades. If NSBs are a major causeof obesity, then these data suggest that fruit drinks and adesare a greater cause of obesity than carbonated soft drinks, andtherefore fruit drinks and ades should be subjected to a high-er tax than carbonated soft drinks. Yet there are no estimatesof how much greater are the externalities of fruit drinks andades than carbonated soft drinks, so there is no basis fordetermining the correct taxes. It is also unlikely that differ-ential taxation across racial/ethnic groups would be legislat-ed, thus again calling into question the ability of policy-makers to “correctly” tax beverages for various externalities.
The non-obese Although common sense indicates that notall soda drinkers are obese or even overweight, a soda tax can-not differentiate between consumers by their weight. Evenif soda consumption causes obesity, there is no logic to tax-
ing consumers — even excessive ones — who do not haveweight problems.
Moreover, taxes on all soda consumers are likely to exertdifferential effects on light vs. heavy demanders. A recentstudy finds that taxes on alcohol consumption significantlylower drinking by light drinkers, but not heavy drinkers.Thus, taxes dramatically lower consumption of those whodrink relatively little, but exert little to no effect on con-sumption habits of those individuals who are the targets ofpolicymakers. There is little reason to suspect anything dif-ferent in the case of soda taxes.
Soda tax hikes are also unlikely to be large enough to sig-nificantly lower the weight of the population. A recent paperby Jason Fletcher et al. examined how state tax rate changesfrom 1990 to 2006 affected body mass index. They found thata one percentage point increase in the tax rate was associat-ed with a decrease of just 0.003 points in body mass. Thus,even a large tax increase is unlikely to exert much effect onpopulation weight. The authors concluded, for example, thata 58 percent tax on soda, equivalent to the average federal andstate tax on cigarettes, would drop the average body mass byonly 0.16 points — a trivial effect given that obesity is definedas a body mass index of at least 30. Thus, it is most unlikelythat taxes could be raised enough to transform the obese intomuch slimmer people.
Substitution Unintended consequences of government inter-vention arise whether or not its advocates wish to acknowl-edge them. Economic theory demonstrates that taxes focusedon one product, such as soda, will lead consumers to purchase
substitutes. What beverages and food consumers wouldswitch to and what the social effects of that change would beare not known.
Soda tax advocates seem to believe that a soda tax will leadto more water and diet drink consumption, but it is likely thatsubstitutions into other products with caloric propertiessimilar to soda will arise, with overall effects on weightunknown. Moreover, a supply of new drink choices is likelyto emerge that creatively circumvents the new taxes, thusagain muting intended reductions in sugar consumption.
Examples of unintended consequences of interventionsabound. A 2004 study by M. C. Farrelly et al. and a 2006study by J. Adda and F. Cornaglia both indicate that tax hikeson cigarettes have led smokers to switch to higher tar and nico-tine brands so that they can maintain chemical intake levelsas they smoke less, to the detriment of their health. A 2001
study by John DiNardo and Thomas Lemieux found thatteen marijuana consumption rose following state tax increas-es on beer. A 2004 study by S.-Y. Chou et al. found that high-er cigarette prices, which reduce smoking, are associated withhigher rates of obesity.
Recent research suggests a few of the unintended conse-quences of soda taxes. Some consumers will likely switch todiet sodas, but some researchers worry that the health effectsof artificial sweeteners may be worse than those of regularsugar. A recent study by Gideon Yaniv et al. concludes that atax on junk food (including soda) could increase obesity as itleaves less time for exercise, especially among physically activepeople, when it leads them to spend more time shopping forfresh ingredients and preparing food at home.
Other causes of obesity Recent economic research indi-cates that factors other than soda are probable causal factorsof obesity. A 2003 study by Tomas Philipson and RichardPosner finds that technological change has reduced thedemands for heavy labor and thus created a more sedentaryworkforce prone to weight gain. Another 2003 study by DavidCutler et al. points out that improvements in food-storagetechnology have reduced the time cost of preparing meals,which leads to more food and beverage consumption. Finally,huge innovations in medical technology that include treat-ment of obesity-related illnesses have arisen that lessen health-related costs of obesity. As a result, some people have becomeless concerned about their weight. It remains unclear how asoda tax would overturn any of these factors that contributeto weight gain.
Recent economic research indicates that factors other than soda consumption are
probable causal factors of obesity
CONCLUSION
We have argued that soda taxes are unlikely to correct for anyreal or imagined problems related to our nation’s obesity rate.It is not only unclear that soda causes obesity, but even if it did,policymakers have neither the technical expertise nor politi-cal courage to set taxes that correct any externality problems.
Even if policymakers did have such expertise, soda taxeswould likely be regressive, as lower-income households spenda greater share of their income on soda than higher-incomehouseholds. As such, soda taxes would disproportionately fallon the poor — soda drinkers who may or may not be obese.If non-obese individuals truly pay some of the higher healthcare costs of the obese, the best solution would be to correctthis negative externality through imposing surcharges onhealth insurance premiums of the obese.
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Diversion of funds Despite good intentions or politicalpromises to the contrary, past efforts to fund preventionprograms often fund very little of those programs. Tobaccocontrol is a clear example of where promises failed to meetpractice. It has been estimated that no more than 10 cents onthe dollar of funds from the 1998 Master SettlementAgreement with tobacco companies have been spent on tobac-co control programs, despite promises that a majority of thefunds would be aimed at smoking prevention. Given the cur-rent fiscal imbalances at the state and federal levels, increasedtax revenues generated through soda taxes would surely havea similar fate. Moreover, spending on tobacco control has beenshown to exert trivial effects on cigarette consumption, thuscalling into question the effectiveness of public spending onobesity prevention efforts.
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