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Combined fiscal policies to promote healthier diets: Effects on purchases and consumer welfare

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  • Juan Carlos Caro
  • Pourya Valizadeh
  • Alejandrina Correa
  • Andres Silva
  • Shu Wen Ng

Abstract

Taxes on unhealthy foods and sweetened beverages, as well as subsidies to healthy foods, have become increasingly popular strategies to curb obesity and related non-communicable diseases. The existing evidence on the welfare effects of such fiscal policies is mixed and almost uniquely focused on tax schemes. Using the 2016-2017 Chilean Household Budget Survey, we estimate a censored Exact Affine Stone Index (EASI) incomplete demand system and simulate changes in purchases, tax incidence, and consumer welfare of three different policy scenarios: (1) a 5 percentage point additional tax on sweetened beverages (currently taxed at 18%) and a new 18% tax on sweets and snacks, (2) a healthy subsidy by zero-rating fruits and vegetables from the current 19% value-added tax, and (3) a combined (tax plus subsidy) policy. Under full pass-through of these policies, the combined scheme captures the incentives to switch purchases from both single-policy alternatives, resulting in a net welfare gain and subsidy transfer for the average Chilean household. In terms of welfare, low-income households strictly benefit from a combined policy, while high-income households experience a small consumer welfare loss, resulting in re-distributional effects.

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  • Juan Carlos Caro & Pourya Valizadeh & Alejandrina Correa & Andres Silva & Shu Wen Ng, 2020. "Combined fiscal policies to promote healthier diets: Effects on purchases and consumer welfare," PLOS ONE, Public Library of Science, vol. 15(1), pages 1-23, January.
    • Handle: RePEc:plo:pone00:0226731
    DOI: 10.1371/journal.pone.0226731
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    Cited by:

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    2. Saha, Sanjib & Nordström, Jonas & Scarborough, Peter & Thunström, Linda & Gerdtham, Ulf-G., 2021. "In search of an appropriate mix of taxes and subsidies on nutrients and food: A modelling study of the effectiveness on health-related consumption and mortality," Social Science & Medicine, Elsevier, vol. 287(C).
    3. Anikó Bíró, 2021. "The impact of sweet food tax on producers and household spending—Evidence from Hungary," Agricultural Economics, International Association of Agricultural Economists, vol. 52(4), pages 545-559, July.
    4. Gonçalves, Judite & Pereira dos Santos, João, 2020. "Brown sugar, how come you taste so good? The impact of a soda tax on prices and consumption," Social Science & Medicine, Elsevier, vol. 264(C).
    5. Pourya Valizadeh & Shu Wen Ng, 2021. "Would A National Sugar‐Sweetened Beverage Tax in the United States Be Well Targeted?," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(3), pages 961-986, May.
    6. Di Cosmo, Valeria & Tiezzi, Silvia, 2023. "Let them Eat Cake? The Net Consumer Welfare Impact of Sin Taxes," MPRA Paper 116214, University Library of Munich, Germany.

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