Sugar Taxes Aren’t Sweet: The Case Against Taxes on Sugar-Based Drinks

Abstract

Everyday there is a new call by politicians and scholars to place taxes on sugar-based drinks. Sodas, energy drinks, sports drinks, and some juices are increasingly linked as a cause for the obesity epidemic. It is thought that a tax will dissuade individuals from drinking these highly caloric beverages. In addition the revenue collected could be used to help offset the negative health externalities generated by their consumption. A tax of this nature is the text book definition of a Pigouvian tax. However, a Pigouvian tax on sugary drinks would be ineffective at combating obesity for four reasons: it would be under-inclusive; the tax would be too small to adequately deter consumers; tax revenues will decline while the associated health costs will rise; and this tax would be highly regressive.

Keywords: sugar tax, soda tax, soft drink tax, Ounces of Prevention, Public Policy Case for Taxes on Sugared Beverages, externality, pigou, coase, pigouvian, obese, obesity

JEL Classification: H00, H20, H21, H23, I10