Beverage tax, obesity, overweight, Food Consumption/Nutrition/Food Safety, D12, H2, I18,

Todd, Jessica E.

Zhen, Chen

English

Research Papers in Economics

  
 
 
3rd Quarter 2010 | 25(3)  
CAN TAXES ON CALORICALLY SWEETENED BEVERAGES REDUCE OBESITY? 
Jessica E. Todd and Chen Zhen  
JEL Classifications: D12, H2, I18 
Enlightened by the success of using tobacco taxes to curb smoking prevalence, many have argued that 
large beverage taxes are an attractive policy tool in the fight against obesity because, unlike many other 
foods, calorically sweetened beverages (CSBs) have little nutritional value. However, unlike tobacco which is 
harmful at any level of consumption, CSBs may be consumed in moderation as part of a healthy diet. In the 
United States on average, CSBs make up a large share of total daily calories—about 13% for adolescents 
and young adults (Figure 1). Thus, reducing the consumption of CSBs may substantially reduce caloric 
intake, as long as individuals do not compensate by adding calories from other foods or drinks. 
 
Existing studies of beverage demand establish that, consistent with economic theory, households do reduce 
the quantity of CSBs purchased in response to higher prices (Andreyeva, Long, and Brownell, 2010; Smith, 
Lin, and Lee, 2010; Finkelstein et al. forthcoming), which suggests that a tax-induced large increase in shelf 
price may be effective at reducing caloric intake. The question is how large of a tax—and in what form—is 
needed to cause a noticeable decline in the prevalence of overweight and obesity? An emerging body of 
economic research has attempted to address this question. Much previous research has referred to 
beverages sweetened with sugar or corn syrup as sugar-sweetened beverages. We refer to these drinks as 
CSBs to more accurately reflect the fact that not all contain sugar. 
Although some claim that a 10% tax on CSBs would likely “…be the single most effective measure to reverse the obesity epidemic” (Frieden, Dietz, and Collins, 2010, p.358, ), a closer look at current consumption 
patterns and prices suggests that getting Americans to exchange CSBs for healthier low-calorie beverages or 
to reduce consumption of CSBs will probably take more than just a 10% tax. 
CSBs—including fruit drinks, energy drinks and sweetened coffees and teas—are on average more 
expensive than lower calorie beverages such as diet soft drinks, bottled water, and unsweetened coffee and 
tea (Table 1). Yet, despite higher prices, almost all Americans consume CSBs and less than half report 
consuming many low-calorie alternatives (Figure 2). Fewer than 50% in all age groups report consuming any 
water—bottled or tap—and, except for unsweetened coffee and tea among adults age 40 and up, even fewer 
consume diet drinks or other low-calorie beverages. 
  
What Should be Taxed and How? 
Throw Out the Sales Tax 
Many states currently have special sales taxes on carbonated beverages—33 states in 2008 (Bridging the 
Gap, 2009). Such taxes are effective at generating revenue, but research shows that they have had little to 
no effect on overweight or obesity for adults or children (Powell, Chriqui, and Chaloupka, 2009; Sturm et al. 
2010; Fletcher, Frisvold, and Tefft, 2010). 
It is not surprising that sales taxes would have little effect on weight. First, the rates are quite low, averaging 
only 5.1% per taxing state (Bridging the Gap, 2009). Second, consumers may not be aware of the taxes 
given that sales taxes are not apparent on shelf prices. Purchase receipts generally only report the total sales 
tax paid, not the sales tax on each item. According to classic economic theory, assuming competitive 
markets and rational consumers, a sales tax should elicit the same consumer response as other forms of 
taxes of commensurate magnitude, and the economic incidence of the tax is the same whether it is levied on 
the producer or consumer. However, recent evidence suggests that consumers may not be aware of sales 
taxes on items in grocery stores when they are not included in the shelf price, and that the economic 
incidence of the tax may be dependent on whether the tax is imposed on the manufacturer, retailer, or 
consumer (Chetty, Looney, and Kroft, 2009). 
Tax All Beverages with Added Caloric Sweeteners 
Most current state sales taxes are applied on both caloric and diet carbonated beverages, but not on other 
calorically sweetened beverages such as noncarbonated fruit drinks, sports drinks, flavored milk, or 
sweetened coffees and teas. Consumers may avoid the tax by substituting these untaxed drinks for taxed 
carbonated beverages and consume the same amount of calories. Some states and localities, such as New 
York, have excluded or are considering excluding diet drinks and bottled water, in part to help gain industry 
support for the tax (Berger, 2010). To increase effectiveness in inducing behavior change, a beverage tax should cover all types of calorically 
sweetened beverages, including sports drinks, flavored teas, and blended coffees. These noncarbonated 
beverages are increasingly popular beverages and also have a significant amount of calories per serving. Of 
course, consumers may increase intake of other sources of added sugar, such as cakes, cookies, and other 
nonbeverage sweets if these non-beverage foods become relatively cheaper in the presence of a large 
beverage tax. 
Consider an Excise Tax 
Brownell et al. (2009) recommend a very specific tax on beverages with added caloric sweeteners—an 
excise tax of 1 cent per ounce. Such a tax differs from a sales tax in that the manufacturer or distributor 
would be responsible for paying the tax, but most importantly, part or all of the tax would be passed through 
as an increase in shelf prices. Chetty, Looney, and Kroft (2009) find that consumers respond less to a sales 
tax than they do to a tax that is included in the shelf or posted price for beer. Thus, an excise tax on CSBs 
may elicit a larger change in behavior than a less-apparent sales tax. 
How Much to Tax? 
How large of a tax is necessary to have a noticeable effect on body weight such that the prevalence of 
overweight and obesity is reduced depends on how responsive consumers are to increasing prices—that is, 
the consumer price elasticity—and how a decrease in consumption of CSBs will decrease total calories 
consumed, and ultimately result in weight loss. 
How Responsive Are Consumers to the Price of CSBs? 
Studies that examined only carbonated soft drinks find that a 10% increase in price will reduce quantities 
purchased by about 8% to 10% (Andreyeva, Long, and Brownell, 2010). More recent research that considers 
all caloric sweetened beverages suggests that consumers may be more responsive to price. Smith, Lin, and 
Lee (2010) find that a 10% increase in price would reduce household purchases from grocery stores and 
similar outlets by about 13%. Assuming the same percentage change in intake for adults and children, they 
estimate that a 20% increase in the price of CSBs would decrease energy intake on average by 34 calories 
per day for adults and 40 calories per day for children. These daily calorie reductions could translate into a 
short-term decrease of up to 3.6 pounds of body weight in a year for adults and up to 4.2 pounds per year 
among children under the simplified assumption that a pound of fat tissue results from about 3,500 
kilocalories (kcal). 
One drawback to the study by Smith, Lin, and Lee (2010) is that the percentage changes in consumption for 
adults and children are assumed to be the same and equal to the estimated percentage changes in 
household-level purchases from grocery stores. Given the differences in consumption patterns between 
adults and children (Figure 2), it is possible that price changes will affect adults and children differently. 
Moreover, not all food and beverages are consumed at home, so estimates based only on purchases from 
grocery stores or similar outlets may overstate the actual change in consumption (Smith, Lin, and Lee, 2010). 
Preliminary work by Todd, Leibtag, and Mancino (2010) uses individual consumption data from the 2003-
2006 National Health and Nutrition Examination Survey and prices from the Quarterly Food-at-Home Price 
Database (QFAHPD) to estimate how responsive children and adult beverage consumption is to changes in 
prices. They find that children’s consumption is more responsive to price than adults, indicating that a 
beverage tax may help fight obesity among children more than among adults. 
How Much Will a Tax Really Affect Obesity? 
To reduce obesity and overweight, a tax on CSBs will need to result in a decrease in total caloric intake. In 
response to higher CSB prices, individuals may reduce calories from CSBs, but compensate by increasing 
caloric intake from food. Ultimately, the net effect on total caloric intake is an empirical question. Research 
has found that existing sales taxes have not had much effect on Body Mass Index (BMI) or overweight and 
obesity (Powell, Chriqui, and Chaloupka, 2009; Sturm et al. 2010; Fletcher, Frisvold, and Tefft, 2010), but this 
is probably due to the fact that existing sales taxes are small in magnitude and hence do not affect consumption very much. 
Wendt and Todd (2010) look directly at how prices for various beverages affect children’s BMI using the 
Early Child Longitudinal Survey Kindergarten Class (ECLS-K) and prices from the QFAHPD. They find that 
an increase in the price of soda and fruit drinks can reduce children’s BMI, but significant weight reductions 
take at least one year to appear. A 10% increase in the price of soda would reduce BMI by 0.3% after one 
year and the same change in the price of fruit drinks would decrease BMI by 0.2% on average for children 
five to 12 years old. Relatively rough estimates using 2003-2006 NHANES data indicate that a 20% increase 
in the price of soda would reduce the incidence of at-risk for overweight—BMI greater than the 85th 
percentile for age and gender—by about 0.5 percentage points and the incidence of overweight—BMI 
greater than the 95th percentile for age and gender—by about 0.1 percentage points after one year among 
children five to 12 years old. We would expect that the effects would be larger if the tax covered all caloric 
sweetened beverages. 
Smith, Lin, and Lee (2010) estimate larger effects. A 20% tax on all CSBs would reduce obesity among 
adults by three percentage points and overweight in children by 5.3 percentage points. However, their 
estimates likely overstate the potential impact because they assume intake declines as much as household 
purchases from grocery stores decrease in response to the tax. Finkelstein et al. (forthcoming) estimate more 
modest effects on weight—declines of about one pound per person from a 40% tax on all store-purchased 
CSBs. Using 2003-2006 NHANES data, we find that a weight loss of one pound per person age two years 
and up would decrease the incidence of obesity among adults 20 and older by 0.6 percentage points and 
overweight among children by 1.1 percentage points. 
Distributional Issues? 
Taxes on food are generally regressive, so policy makers will also need to consider how a tax affects low 
income households. Three studies have examined the potential distributional effect of large beverage taxes 
across income strata. Finkelstein et al. (forthcoming) investigated the tax burden of large CSB sales taxes on 
households across income quartiles. Their results indicate that high-income households may bear a larger 
share of the total tax incidence, because high-income households purchase more branded beverages 
relative to low-income households who purchase more lower-cost generic drinks. In contrast, Zhen et al. 
(2010) and Lin, Smith, and Lee (2010) find that low-income households would pay a slightly larger share of a 
CSB beverage tax. 
Should We Do It? 
Research suggests that beverage taxes, even when relatively large—40%—will have only modest effects on 
weight and the incidence of overweight and obesity within one year. However, over a longer time horizon, 
greater declines in obesity could be achieved as American’s get out of the habit of consuming CSBs. Zhen et 
al. (2010) find that consumption of CSBs is habit forming, but not more so than milk. Whether or not calories 
from other foods, such as cookies, chips, or other “junk food,” will fill the void left from decreasing 
consumption of CSBs is still largely unknown. Future research should examine consumer substitutions 
between junk beverages and foods. 
There is no question that a tax on CSBs will raise billions of dollars in tax revenue. If this money is used to 
help fund other obesity-reduction programs such as consumer nutrition education, the tax may be more 
effective than being used as a way to increase the monetary cost of consumption alone. One concern is that 
a large tax may hurt very low-income households, particularly those that struggle to afford enough to eat and 
rely heavily on CSBs as a cheap source of calories. Rising prices, even for beverages that do not meet 
nutritional needs other than calories, may have unintended negative effects on nutrition, particularly among 
low-income households. 
Unlike second-hand smoke, the externality of obesity is primarily reflected through increased Medicare and 
Medicaid expenses. CSBs can be consumed in moderation as part of a healthful diet. A tax on all 
consumption penalizes those who drink these beverages in moderation. 
Given that on an average day nearly 90% of the population consumes some amount of CSBs, we wonder 
about the political economy of a large excise tax. How likely will such large taxes be passed when over 90% 
of the population consumes some amount of CSBs? Attempts to pass a large CSB tax in New York State have failed twice, but per-can taxes have recently passed in Washington and Baltimore. Time will tell whether 
such taxes will be repealed or whether they will gain in popularity and acceptability. 
It is important to remember that any tax on a specific food or group of foods can only address one small 
aspect of the obesity epidemic. Excessive weight is determined by caloric intake and caloric expenditure. 
Diet choices are the result of a complex set of household and individual decisions, reflecting not only 
economic factors but also social and cultural norms. Physical activity, the other side of the energy balance 
equation, is not likely to respond to changes in food prices. Thus, taxing CSBs may be one part of a multi-
sectoral approach to tackling the problem. 
For More Information 
Andreyeva T., Long, M.W., and Brownell, K.D. (2010). The impact of food prices on consumption: A 
systematic review of research on price elasticity of demand for food. American Journal of Public 
Health,100(2), 216-222. 
Berger, J. (2010, May 19). New strategy for soda tax gives diet drinks a break. The New York Times, p A-22. 
Bridging the Gap. (2009). State snack and soda tax data. Bridging the Gap Program, University of Chicago. 
Available online: http://www.impacteen.org/obesitystatedata.htm. 
Brownell, K.D., Falrey, T. Willett, W.C., Popkin, B.M., Chaloupka, F.J., Thompson, J.W., and Ludwig, D.S. 
(2009). The public health and economic benefits of taxing sugar-sweetened beverages. The New England 
Journal of Medicine, 361(16), 1599-1605. 
Chetty, R., Looney, A., and Kroft, K. (2009). Salience and taxation: Theory and evidence. American 
Economic Review, 99(4), 1145–1177. 
Finkelstein, E.A., Zhen, C., Nonnemaker, J., and Todd, J.E. (forthcoming). The impact of targeted beverage 
taxes on higher and lower income households. Archives of Internal Medicine. 
Fletcher J.M., Frisvold, D., and Tefft, N. (2010). Can soft drink taxes reduce population weight? 
Contemporary Economic Policy, 28(1), 23-35. 
Frieden, T.R., Dietz, W., and Collins, J. (2010). Reducing childhood obesity through policy change: Acting 
now to prevent obesity. Heath Affairs, 29(3), 357-363. 
Lin, B-H., Smith, T.A., and Lee, J-Y. (2010). The effects of a sugar-sweetened beverage tax: Consumption, 
calorie intake, obesity, and tax burden by income. Selected paper for presentation at the AAEA, CAES, & 
WAEA joint Annual Meeting, Denver, Colo., July 25-27, 2010. 
Powell L.M., Chriqui, J., and Chaloupka, F.J. (2009). Associations between state-level soda taxes and 
adolescent body mass index. Journal of Adolescent Health 45(3), S57-S63. 
Smith, T.A., Lin, B-H., and Lee, J-Y. (2010). Taxing caloric sweetened beverages: Potential effects on 
beverage consumption, calorie intake, and obesity. ERR-100, Washington, DC: U.S. Department of 
Agriculture, Economic Research Service. 
Sturm, R., Powell, L.M., Chriqui, J.F., and Chaloupka, F.J. (2010). Soda taxes, soft drink consumption, and 
children’s body mass index. Health Affairs, 29(5), 1052-1058. 
Todd, J.E., Leibtag, E., and Mancino, L. (2010). Would a tax on sugar-sweetened beverages reduce weight? 
An examination based on consumption data. Unpublished paper, Washington, D.C. 
Wendt, M., and Todd, J.E. (2010). Do low prices for sugar-sweetened beverages increase children's weight? Selected poster at the AAEA, CAES, & WAEA joint Annual Meeting, Denver, Colo., July 25-27, 2010. 
Zhen, C., Wohlgenant, M.K., Karns, S., and Kaufman, P. (2010). Habit formation and demand for sugar-
sweetened beverages. Paper presented at the AAEA, CAES, & WAEA joint Annual Meeting, Denver, Colo., 
July 25-27, 2010. 
Jessica E. Todd (jtodd@ers.usda.gov) is an Agricultural Economist, Economic Research Service, U.S. 
Department of Agriculture, Washington, D.C. Chen Zhen (czhen@rti.org) is a Research Economist, RTI 
International, Research Triangle Park, North Carolina. The views expressed in this paper are those of the 
authors and do not necessarily reflect the views of the Economic Research Service or the U.S. Department 
of Agriculture. 
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Can Taxes on Calorically Sweetened Beverages Reduce Obesity?

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