The welfare effects of health-based food tax policy

•We provide a comprehensive analysis of health-based food tax policy.•We estimate a complete demand system and simulate health effects of tax reforms.•We account for the uncertainty involved in each step of the analysis.•We consider a sugar tax, a tax reduction for healthy foods and a combined refor...

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Bibliographic Details
Published in:Food policy 2014-12, Vol.49, p.196-206
Main Authors: Härkänen, Tommi, Kotakorpi, Kaisa, Pietinen, Pirjo, Pirttilä, Jukka, Reinivuo, Heli, Suoniemi, Ilpo
Format: Article
Language:English
Subjects:
Bootstrap mechanism
Bootstrapping
Cardiovascular disease
Commodity demand
Confidence intervals
Coronary heart disease
Demand
Diabetes
Effects
Estimates
Fiscal policy
Food
Food policy
Food taxation
Foods
Health
Inequalities
Obesity
Policies
Sin taxes
Sugar
Tax incidence
Tax reform
Taxation
Uncertainty
Welfare
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Summary:•We provide a comprehensive analysis of health-based food tax policy.•We estimate a complete demand system and simulate health effects of tax reforms.•We account for the uncertainty involved in each step of the analysis.•We consider a sugar tax, a tax reduction for healthy foods and a combined reform.•Sugar tax reduces obesity and associated diseases and may lower health inequality. This paper examines the effects of health-oriented food tax reforms on the distribution of tax payments, food demand and health outcomes. We offer an illustration of how one can take into account the uncertainty related to both demand estimation and health estimates and to produce confidence intervals for the overall health effects instead of only point estimates. Taxation of sugar could lead to a statistically significant reduction in both the incidence of type 2 diabetes and coronary heart disease. The health effects appear to be most pronounced for low-income individuals, and the reforms may therefore reduce health inequality. This effect undermines the traditional regressivity argument against the heavy taxation of unhealthy food.
ISSN:0306-9192
1873-5657
DOI:10.1016/j.foodpol.2014.07.001