Tuesday, July 24, 2007

Fat taxes - regressive & ineffective

This paper examines the case for leving fat taxes via dairy products.

The conclusion:

In an attempt to improve the nation's health, many U.S. policy makers have or are considering imposing taxes on the fat in food. Dairy products constitute a large portion of at home fat consumption of particularly harmful types of fat, and nearly all U.S. households consume these products. We estimate a demand system for dairy products, which we use to simulate substitution effects among dairy products and the welfare impacts of fat taxes on various consumer groups. We find that even a 10% ad valorem tax on the percentage of fat would reduce fat consumption by less than a percentage point. Given that the demand for most dairy products is inelastic, a fat tax is an effective means to raise revenue. However, these fat taxes are unattractive because they are extremely regressive, and the elderly and poor suffer much greater welfare losses from the taxes than do younger and richer consumers.

This doesn't surprise me although the objective of the inquiry - fat rather than sugar - does a little. A tax on softdrink - consumed mainly by youth with relatively more elastic demands might have greater impact and do more to address obesity issues.


lock said...

Lets not forget that diet is only half the picture, it really is just a simple case of calories in (food) vs calories out (exercise).
Perhaps a fair solution would be to round up everyone once every 3 years or so and weight them. The tax then gets applied on their body fat ;-)
But its good to see someone looking into this problem, which may be more of an issue than smoking in the future. Love your work Harry.

Yobbo said...

Have you ever seen a tax you didn't want to root Harry?