Sugar tax – sweet oblivion

A sugar tax may have to be introduced to curb obesity rates, the chief medical officer for England has said” and “earlier this year, doctors called for a soft drinks tax to reduce sugar intake.” These are just two statements from the BBC’s reporting on the possibility of introducing a tax on sugar in order to tackle obesity in the UK.

I have two questions about this:

  • Just how much exactly the amount of the tax should be? Presumably if a tax is introduced in order to divert consumption from sugary products to less sugary ones then the Government will have to get some estimates of demand elasticities to be able to decide about the level of price increase that will trigger a sufficient reaction in demand.
  • And more importantly: does the government know what will happen if the price of sugary food/drinks goes up? Let’s say the goal is to reduce the consumption of sugary soft drinks. What happens when a sugar tax increases the price of these drinks? Consumers of soft drinks will want to switch to a close enough substitute (I am assuming that people will not stop drinking altogether).Now assume that the only substitute to sugary soft drinks is bottled water. For any water bottling business the rational reaction to the price increase of their closest substitute would be to increase the price of bottled water as well. So in the end the price of sugary drinks relative to its closest substitutes would not increase by much (if at all) reducing the chance of consumers switching to healthier products.On the other hand, a tax on sugar will punish consumers who consume products that the Government want obese people to switch to, simply because the prices of these products will also increase. Very smart move indeed…

One Response to Sugar tax – sweet oblivion

  1. Reblogged this on beyazityagdoken and commented:
    Never thought it would raise waters price but it makes sense since everyone in business today is in for the profit!

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