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The impact of soda taxes on consumer welfare: implications of storability and taste heterogeneity

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  • Emily Yucai Wang

Abstract

type="main"> 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.

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  • Emily Yucai Wang, 2015. "The impact of soda taxes on consumer welfare: implications of storability and taste heterogeneity," RAND Journal of Economics, RAND Corporation, vol. 46(2), pages 409-441, June.
    • Handle: RePEc:bla:randje:v:46:y:2015:i:2:p:409-441
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    File URL: http://hdl.handle.net/10.1111/1756-2171.12090
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    References listed on IDEAS

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