Will a Fat Tax Work?

Abstract

Of the many proposals to reverse the obesity epidemic, the most contentious is the use of price-based interventions such as the fat tax. Previous investigations of the efficacy of such initiatives in altering consumption behavior yielded contradictory findings. In this article, we use six years of point-of-sale scanner data for milk from a sample of over 1,700 supermarkets across the United States to investigate the potential of small price incentives for inducing substitution of healthier alternatives. We exploit a pricing pattern particular to milk in the United States, whereby prices in some geographical regions are flat across whole, 2%, 1%, and skim milk; whereas in other regions they are decreasing with the fat content level. The prevailing price structure is determined at a chain and regional level, and is independent of local demand conditions. This exogenous variation in price structure provides a quasi-experimental set-up to analyze the impact of small price differences on substitution across fat content. We use detailed demographics to evaluate price sensitivity and substitution patterns for different socioeconomic groups. Results show that small price differences are highly effective in inducing substitution to lower calorie options. The impact is highest for low-income households who are also most at risk for obesity. Our results suggest that a selective taxation mechanism that lowers the relative prices of healthier options, such that those price changes are reflected in shelf prices at the point-of-purchase, can serve as an effective health policy tool in the efforts to control obesity. Data, as supplemental material, are available at http://dx.doi.org/10.1287/mksc.2015.0917 . Press Release

A systematic review of the effectiveness of food taxes and subsidies to improve diets: Understanding the recent evidence

“…Details of the design and findings of the studies included in the review are presented in Table . Thirty studies (79%) reported the percent change in consumption of the target food or nutrient, or the percentage of total calories, and also presented the tax (or hypothetical tax) as a percentage of price.…”

“… 8,19,20,21,26,40,46,42,24,18,43,23 C : Taxes on individual nutrients (fat, salt, sugar). D : Taxes based on nutrient profiling. 16,17,43,44,49,50,53,55 *Nonsignificant.…”

The Impact of Soda Taxes: Pass-Through, Tax Avoidance, and Nutritional Effects

“…Khan et al (2016) andGriffith et al (2018) apply a similar approach to analyze the impact of a tax on fat content.5 Another set of papers study soda taxes outside of the US. Grogger (2017),Aguilar et al (2016), andColchero et al (2017) investigate the effects of SSB taxes in Mexico Berardi et al (2016).…”

Editorial—Introducing A New Section—Marketing Science: Frontiers

“…Khan et al (2016)'s analysis of the "fat tax" is an example of a timely assessment of a contemporaneously relevant policy question relevant to consumers and marketing. A Frontiers version of these papers would of course have a shorter, briefer "to the main contribution point" introduction and literature review with much of the validation and robustness analysis in a supplemental online appendix.…”