The Effects of a Sugar-Sweetened Beverage Tax: Consumption, Calorie Intake, Obesity, and Tax Burden by Income

Biing-Hwan LinSenior Economist, Food Economics Division, USDA/ERS

Presentation at May 12, 2011Do Taxes and Subsidies Improve Diet and Health? 11Overweight and Obesity Prevalence in the U.S. 1988-94, 1999-2000, 2007-2008

Source: National Health and Nutrition Examination Survey, CDC2Weight Gains ReflectEnergy imbalance We take in more calories than we expand

3Rising Calorie Intakes: 1977 to 2006Sources: 1977-78 NFCS, 1989-91 and 1994-98 CSFII, USDA; 2003-6 NHANES, CDC

4Trend in Beverage Consumption in the USSources: 1977-78 NFCS, 1989-91 and 1994-98 CSFII, USDA; 1999-2004 NHANES, CDC. 55Sources of Calories In the USSources: 1977-78 NFCS, 1989-91 and 1994-98 CSFII, USDA; 2003-6 NHANES, CDC6Will Eat More Fruits and Vegetables Help?USAverage Recommendations (cups) Vegetables2.60 Fruits1.80Average Daily Intake (cups) [% of recommendation] Vegetables1.58 [61%] Fruits1.03 [57%]Source: 1999-2002 NHANES, CDCFruits and vegetables are rich in water and fiber, low in energy densityEating more fruits and vegetables promote satiety and decrease energy intake7New Release: Food Marketing Institute(October 8, 2010)FMI Grocery Shopper Trends 2010: Consumers are Savvy and Informed Bargain Hunters When it Comes to Grocery Shopping8Pricing policies to improve diet:Two case studies9Taxing Caloric Sweetened Beverages (CSB)Subsidizing fruits, vegetables, and milk

ApproachEstimate food demands to obtain demand elasticitiesApply the elasticities to intake data to examine potential effects of pricing policies9Taxing Caloric Sweetened Beverages: Potential Effects on Consumption, Calorie Intake, and Obesity. ERS report by Smith, Lin, and Lee, 2010

The Effects of a Sugar-Sweetened Beverage Tax: Consumption, Calorie Intake, Obesity, and Tax Burden by Income. AAEA 2010 presentation by Lin, Smith, and LeeMeasuring Weight Outcomes for Obesity Intervention Strategies: The Case of a Sugar-Sweetened Beverage Tax. Working paper by Lin, Smith, Lee, and Hall10Beverage Demand11Separation of CSBs and their diet counterpartsCSB (sodas, fruit drinks, sports and energy drinks, and powdered mixes)

Potential CSB substitutes and complementsDiet drinksMilk (skim, low-fat, and whole)100% fruit/vegetable juicesCoffee/teasBottled water11Nielsen National Consumer Panel, 1998-2007 (Purchase data for demand estimation)12Household purchases of groceries scanned at homeQuantity, expenditure, and demographics

CDC National Health and Nutrition Examination Survey, 2003-6 (Consumption data for intake analysis)24-hr dietary recallComprehensive physical, including weight and height

12Beverage Consumption, 2003-613AdultsChildrenLow-incomeHigh-incomeLow-incomeHigh-incomeBeverages: --------------------------- Calories per day --------------------------- Sugary drinks197136189195 Diet drinks2311 Skim milk613614 Low-fat milk37376485 Whole milk37167938 Juices38356350 Tea/Coffee20281110 Bottled water0000Total beverage kcal337269411394Source: ERS calculation of 2003-06 National Health and Nutrition Examination Survey (NHANES), first-day intake data.

13Effect of soda tax on calorie intake and body weight -1.292-0.5910.3440.227-0.0540.529-0.1851.005(A)ElasticityHigh income(B)ElasticityX20% taxPercent -25.84 -11.82 6.88 4.54 -1.08 10.58 -3.70 20.10kcal/day-55.8 kcal0.00.05.50.011.4-0.10.0(D)Change in individual daily intakeBeveragesSugary drinksDiet drinksSkim milkLow fat milkWhole milkJuicesCoffee/teaBottled water38.5 kcal/day-14,053 kcal/yr-4.0 lbs/yr(E)Reduction in calories and weightkcal/day216 kcal00122011220(C)Individual daily intakeExample: A 510 man weighing 175 pounds would have a BMI of 25.1overweight. He drinks a 12 oz. of cola, 8 oz of fruit drink, 8 oz of 2% milk, 8 oz of orange juice, and 8 oz of unsweetened brewed tea. After the tax, other things being equal, the adult male trims off 4.1 pounds and reduces BMI to 24.5normal weight.14Estimated Calorie Effects15Changes in consumption (kcal/day):AdultsChildrenHigh IncomeSugary drinks-35.2-50.3 All beverages-33.3-44.7Low IncomeSugary drinks-37.5-35.8 All beverages-36.8-33.115Estimated Weight Effects: by income16Changes in prevalence (%):AdultsChildrenHigh Income Overweight Before Tax67.630.5 Overweight After Tax63.424.5 Obesity Before Tax33.015.0 Obesity After Tax30.212.0Low Income Overweight Before Tax65.134.2 Overweight After Tax61.129.9 Obesity Before Tax35.017.8 Obesity After Tax32.215.416Static rule of 3500 kcal = 1 poundwidely applied, but over-estimates weight outcome 3500 calories are based on a fixed body composition75% fat and 25% lean tissue

Body composition varies by age, gender, race/ethnicity, and body weight

Weight loss is dynamic because energy requirement depends on many factors, including body weight

An initial reduction of energy intake results in weight loss, which in turn reduces the energy requirement and hence weight loss slows down over time.

1717Weight loss simulations: static vs. dynamic18Subsidize purchase of healthy food:fruits, vegetables, and milk19ECONOMIC INCENTIVES FOR DIETARY IMPROVEMENT AMONG FOOD STAMP RECIPIENTS

Lin, Yen, Dong, and Smallwood. Contemporary Economic Policy, 2010,28(4): 524-36

1919992002 food intakes, compared with 2005 Dietary GuidelinesFood Stamp RecipientsAverage Recommendations (cups) Vegetables2.37 Fruits1.68 Milk products2.65Average Daily Intake (cups) [% of recommendation] Vegetables1.26 [53%] Fruits0.89[53%] Milk products1.39 [53%]20

Data Used

21USDA National Food Stamp Program Survey 1996-7, which has household food use records (quantity and expenditure)

National Health and Nutrition Examination Survey 1999-2002, which has a 24-h recall of food intake at home and away from home21Selected own- and cross-price elasticities22MilkVegetablesNon-juice fruitsJuiceMilk-0.79-0.30-0.120.01Vegetables-0.02-0.72-0.00-0.02Non-juice fruits-0.13-0.02-0.810.01Juice0.010.070.01-1.1722Price subsidy23Assumptions

Price is subsidized by 10%

Subsidy applied to food purchased at grocery stores

Subsidy applied to fruits, vegetables, and fluid milk as is, not mixtures

23Quantity Responses to 10% price subsidy (Food stamp Recipients)24BeforeRecomdAfterAt homeTotalTotalAt homeTotalVegetables (cups)0.941.262.371.001.33Fruit (cups)0.690.891.680.770.97Dairy (cups)1.091.392.651.161.4524Summary25In general, food demand is known to be own-price inelastic for broadly defined food categories

First Fundamental Theorem of Taxation: a tax has little effect on inelastic goods

As we disaggregate food groups, food demands tend to become more own-price elastic because of the influences of substitutes and complements

To simulate the effects of pricing policies on diet and health, it is inappropriate to rely exclusively on the own-price elasticities. Cross-price effects have to be incorporated.

2526Chart11013.916.95664.568.322.930.533.9

1988-19941999-20002007-2008

Sheet11988-19941999-20002007-2008Children obesity1013.916.9Adult overweight5664.568.3Adult obesity22.930.533.9To resize chart data range, drag lower right corner of range.