The Welfare and Nutritional Effects of Threshold Sin Taxes: Evidence from the UK Soda Tax

Title: The Welfare and Nutritional Effects of Threshold Sin Taxes: Evidence from the UK Soda Tax (joint with Stephan Seiler and Xinrong Zhu)

Abstract: We study the UK sugar tax, which only applies to beverages with sugar content above a threshold and triggered widespread reformulation. We estimate a structural model of beverage demand and firms' price setting using household-level data from before and after the tax. We find that the tax reduced sugar consumption from beverages by 47%. Monetized health gains (from externalities and internalities) outweigh the consumer welfare loss, leading to an increase in total welfare. Reformulation accounts for 29% of the sugar reduction at almost no cost to consumers, although it halves tax revenue. Matching the UK's sugar reduction with a volumetric tax requires nearly double its rate and imposes a much greater consumer welfare loss. Broadening the tax base to diet beverages leads to less sugar reduction and a higher consumer welfare loss. Both alternatives raise more tax revenue, but neither matches the threshold tax's total welfare gain.

The working paper is available here at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=7463838.

More information on Jiajia Zhan can be found here.