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WHEN DO FAT TAXES INCREASE CONSUMER WELFARE?
Author(s) -
Lusk Jayson L.,
Schroeter Christiane
Publication year - 2012
Publication title -
health economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.55
H-Index - 109
eISSN - 1099-1050
pISSN - 1057-9230
DOI - 10.1002/hec.1789
Subject(s) - economics , pound (networking) , public economics , welfare , willingness to pay , consumer welfare , empirical evidence , value added tax , rationality , tax deferral , tax reform , microeconomics , state income tax , gross income , law , philosophy , epistemology , world wide web , computer science , political science , market economy
Previous analyses of fat taxes have generally worked within an empirical framework in which it is difficult to determine whether consumers benefit from the policy. This note outlines on simple means to determine whether consumers benefit from a fat tax by comparing the ratio of expenditures on the taxed good to the weight effect of the tax against the individual's willingness to pay for a one‐pound weight reduction. Our empirical calculations suggest that an individual would have to be willing to pay about $1500 to reduce weight by one pound for a tax on sugary beverages to be welfare enhancing. The results suggest either that a soda tax is very unlikely to increase individual consumer welfare or that the policy must be justified on some other grounds that abandon standard rationality assumptions. Copyright © 2011 John Wiley & Sons, Ltd.