Unanticipated Effects of Soda Tax, example 1037

On the surface the logic of a soda tax seems simple: raise the price of an unhealthy food, people consume less, and public health improves.  But, as I've pointed out again and again on this blog, the story is much less simple than it first appears.  

First, even if we believe people suffer from various behavioral biases, higher prices almost certainly make people worse off.  Second, when we raise the price of one unhealthy thing, people might substitute to consume other unhealthy things.  Third, if the tax is just added at the checkout counter and not on the shelf display, it may not have nearly the effect on purchase behavior as assumed.  Forth, if people know the reason for the tax, some may "protest" and buy more instead.  Fifth, the projected weight loss from such taxes often relies on unreasonable rules of thumb like 3500kcal=1lb. Six, even when taxes have an effect, the causal impact may arise more from an "information effect" rather than a "price effect."  Seventh, such taxes may induce unanticipated effects because of how sellers respond to the policy.  Finally, soda taxes are regressive - having a proportionally larger effect on on lower income households (see also my co-authored paper on effects of "unhealthy" food taxes more generally).

Now, comes this new paper in the American Journal of Agricultural Economics by Emily Wang, Christian Rojas, and Francesca Colantuoni, which incorporates the insight that some households are more likely to respond to promotions and to store.  The abstract:

We apply a dynamic estimation procedure to investigate the effect of obesity on the demand for soda. The dynamic model accounts for consumers’ storing behavior, and allows us to study soda consumers’ price sensitivity (how responsive consumers are to the overall price) and sale sensitivity (the fraction of consumers that store soda during temporary price reductions). By matching store-level purchase data to county-level data on obesity incidence, we find higher sale sensitivity in populations with higher obesity rates. Conversely, we find that storers are less price sensitive than non-storers, and that their price sensitivity decreases with the obesity rate. Our results suggest that policies aimed at increasing soda prices might be less effective than previously thought, especially in areas where consumers can counteract that price increase by stockpiling during sale periods; according to our results, this dampening effect would be more pronounced precisely in those areas with higher obesity rates.