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The ‘soda tax’ is unlikely to make Mexicans lighter or healthier: New evidence on biases in elasticities of demand for soda

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  • Andalón, Mabel
  • Gibson, John

Abstract

Mexico’s ‘soda tax’ has been predicted to reduce average weight of Mexicans by up to three pounds, based on extant estimates of the own-price elasticity of quantity demand for soda of between −1.0 and −1.3. These elasticity estimates from household survey data are exaggerated by not accounting for how consumers adjust quality demanded as price changes. Some estimates also are biased by correlated measurement error. To illustrate these biases we use budget survey data and soda price data for Mexico to estimate demand models that correct for both errors. The corrected own-price elasticity of quantity demand is between −0.1 and −0.4, implying that the soda tax might cut average weight by just half a pound, which is too little to improve population health.

Suggested Citation

  • Andalón, Mabel & Gibson, John, 2018. "The ‘soda tax’ is unlikely to make Mexicans lighter or healthier: New evidence on biases in elasticities of demand for soda," MPRA Paper 86370, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:86370
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    References listed on IDEAS

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    More about this item

    Keywords

    Demand; Household surveys; Quality; Price; Soda taxes; Mexico;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • I10 - Health, Education, and Welfare - - Health - - - General

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