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The impact of soda taxes on consumer welfare: implications of storability and taste heterogeneity
Author(s) -
Wang Emily Yucai
Publication year - 2015
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12090
Subject(s) - economics , unobservable , revenue , consumption (sociology) , sweetening agents , microeconomics , price elasticity of demand , elasticity (physics) , consumer welfare , welfare , elasticity of substitution , consumer demand , econometrics , production (economics) , food science , chemistry , market economy , social science , materials science , accounting , sociology , composite material
The typical analysis on the effectiveness of soda taxes relies on price elasticity estimates from static demand models, which ignores consumers' inventory behaviors and their persistent tastes. This article provides estimates of the relevant price elasticities based on a dynamic demand model that better addresses potential intertemporal substitution and unobservable persistent heterogeneous tastes. It finds that static analyses overestimate the long‐run own‐price elasticity of regular soda by 60.8%, leading to overestimated consumption reduction of sugar‐sweetened soft drinks by up to 57.9% in some cases. Results indicate that soda taxes will raise revenue but are unlikely to substantially impact soda consumption.