Economists find that tax could cut consumption of sugared drinks

Date posted: July 31, 2010

Michael WohlgenantPhoto by Becky KirklandMichael Wohlgenant

To curb the rise of obesity, diabetes and heart disease, policymakers around the country have proposed taxing sugar-sweetened drinks considered unhealthy. But others have argued that such a tax wouldn’t necessarily deter consumption. Preliminary work from N.C. State University and RTI International sheds new light on the debate, finding that consumers do, indeed, respond when these products’ prices change.

And based on what economists know about consumer behavior, chances are Americans would buy fewer of these drinks if a tax drove up the price, said N.C. State’s Dr. Michael Wohlgenant, of the Department of Agricultural and Resource Economics. He worked with Dr. Xiaoyong Zheng of N.C. State and former student Dr. Chen Zhen of RTI to analyze data from the Nielsen Co. on purchases of sodas with sugar, sports and energy drinks, and sweetened juice drinks (as opposed to fruit juices).

They found that if the price went up by a half-cent per ounce, low-income households bought an average of 98 to 109 fewer 12-ounce cans or bottles a year. For higher-income households, the economists saw a larger decrease of between 109 and 144 a year.

The economists are still crunching the numbers to better understand the consequences of an excise tax. Their next task: looking at whether price increases lead people to switch to healthier beverages such as natural fruit juice and non-fat milk.

-Dee Shore

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