In an attempt to improve the nation's health, many U.S. policy makers have or are considering imposing taxes on the fat in food. Dairy products constitute a large portion of at home fat consumption of particularly harmful types of fat, and nearly all U.S. households consume these products. We estimate a demand system for dairy products, which we use to simulate substitution effects among dairy products and the welfare impacts of fat taxes on various consumer groups. We find that even a 10 percent ad valorem tax on the percentage of fat would reduce fat consumption by less than a percentage point. Given that the demand for most dairy products is inelastic, a fat tax is an effective means to raise revenue. However, these fat taxes are unattractive because they are extremely regressive, and the elderly and poor suffer much greater welfare losses from the taxes than do younger and richer consumers.

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BackgroundComprehensive, multi-level approaches are required to address obesity. One important target for intervention is the economic domain. The purpose of this study was to synthesize existing evidence regarding the impact of economic policies targeting obesity and its causal behaviours (diet, physical activity), and to make specific recommendations for the Canadian context.MethodsArksey and O'Malley's (2005) methodological framework for conducting scoping reviews was adopted for this study and this consisted of two phases: 1) a structured literature search and review, and 2) consultation with experts in the research field through a Delphi survey and an in-person expert panel meeting in April 2010.ResultsTwo key findings from the scoping review included 1) consistent evidence that weight outcomes are responsive to food and beverage prices. The debate on the use of food taxes and subsidies to address obesity should now shift to how best to address practical issues in designing such policies; and 2) very few studies have examined the impact of economic instruments to promote physical activity and clear policy recommendations cannot be made at this time. Delphi survey findings emphasised the relatively modest impact any specific economic instrument would have on obesity independently. Based on empirical evidence and expert opinion, three recommendations were supported. First, to create and implement an effective health filter to review new and current agricultural polices to reduce the possibility that such policies have a deleterious impact on population rates of obesity. Second, to implement a caloric sweetened beverage tax. Third, to examine how to implement fruit and vegetable subsidies targeted at children and low income households.ConclusionsIn terms of economic interventions, shifting from empirical evidence to policy recommendation remains challenging. Overall, the evidence is not sufficiently strong to provide clear policy direction. Additionally, the nature of the experiments needed to provide definitive evidence supporting certain policy directions is likely to be complex and potentially unfeasible. However, these are not reasons to take no action. It is likely that policies need to be implemented in the face of an incomplete evidence base.

Integrability of incomplete demand systems is discussed. The concepts of weak integrability, quasi-expenditure function, quasi-indirect utility function, and quasi-utility function are defined. Their relationships to the expenditure function, indirect utility function, and utility function are developed. The dual structure of the quasi-functions permits exact welfare analysis and reveals the conditional preference structure for the commodities of interest. New results relating the uniqueness and exactness of consumer's surplus to the structure of the expenditure and indirect utility functions are obtained.

The methodology of LaFrance and Hanemann for analysing the structure of incomplete demand systems is applied to models that are linear or logarithmic in quantities, prices and/or income. The structure of each model is presented when the implications of consumer choice theory are satisfied. The usefulness of the approach is illustrated. It is shown that considerable prior information is obtained from the theory of consumer choice when it is applied to this set of functional forms for demand equations.In applied demand analysis, an incomplete information set is the rule and not the exception. We are always concerned with a subset of the total number of commodities that are purchased by consumers. Data limitations, finite computer memory, and the increased complexity and time required for numerical computations in large models make it necessary to abstract from a completely specified system of consumer demands with a different equation for each of the countless goods available in the market.Basically only three practical solutions have been proposed to deal with this dimensionality problem. One approach is to aggregate across commodities and estimate a complete system of demand equations with the commodity aggregates (for example, food, clothing, housing, transportation, entertainment and all other goods) as functions of the corresponding set of aggregated price indices and total consumer expenditure (income, for short). This approach has at least two drawbacks. First, the conditions are quite restrictive for consumer preferences to be consistent with such a high degree of price and quantity aggregation. Second, considerable information is lost concerning the demands for individual commodities.The second approach appeals to separability properties of consumer preferences. A common empirical practice is to assume that preferences are separable and estimate a complete system of conditional demands for the goods of interest as functions of that subset of prices and total expenditure on those goods. This approach is based on the fact that weak separability of a subset of goods from all other goods in the consumer's utility function is necessary and sufficient for the existence of conditional demand equations for the separable goods (Primont 1970; Gorman 197 1 ;