Food Purchasing Behavior And Price Interventions: How Taxes And Subsidies Affect Grocery Store Food Choices In A Field Study

Abstract

Do price interventions, namely taxes on unhealthy food and subsidies on healthy food, affect food-purchasing behavior? If so, can they be used to improve health? With the intent to better understand these questions as well as the general dynamics between food preference and price, this paper (a) provides a theoretical framework for understanding purchasing behavior of lower income households subject to taxes and subsidies, and (b) estimates the effects of a price intervention by using data from a six-month field experiment where 212 households were randomized into a control or treatment group, where the treatment group faced a 5 percent tax on unhealthy foods and 5 percent subsidy on healthy foods relative to the control group. The theoretical model suggests that price interventions will have different, and sometimes undesirable, effects depending on the individual's preferences, with lower income individuals being more likely to be negatively impacted by a tax. In the empirical model, the combined tax and subsidy had little effect on household purchasing behavior, and did not increase food purchases in important health-related categories such as fruits and vegetables. To policy makers these results suggest that small taxes and subsidies may not help individuals make better, healthier, food choices. ii