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The 'Soda Tax' is Unlikely to Make Mexicans Lighter: New Evidence on Biases in Elasticities of Demand for Soda

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Abstract
Mexico’s one peso per liter tax on sugar-sweetened drinks has been predicted to reduce average weight of Mexicans by two to four pounds, based on extant estimates of an own-price elasticity of quantity demand for soda of between -1.0 and -1.3. These elasticity estimates ignore consumer responses on the quality margin and are biased by correlated measurement errors. We combine Mexican household budget survey data with city-level soda price data to estimate unrestricted demand models that allow consumer responses on both the quality and quantity margins. If methods from previous Mexican studies are used, the own-price elasticity of quantity demand for soda is between -1.2 and -1.3 but is just -0.2 to -0.3 if more appropriate methods are used. If the corrected elasticities are used, tax-induced soda price increases might cause weight reductions of less than one pound, which is too small to make much difference to health.

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  • Mabel Andalon & John Gibson, 2017. "The 'Soda Tax' is Unlikely to Make Mexicans Lighter: New Evidence on Biases in Elasticities of Demand for Soda," Working Papers in Economics 17/07, University of Waikato.
    • Handle: RePEc:wai:econwp:17/07
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    Cited by:

    1. Julio C. Arteaga & Daniel Flores & Edgar Luna, 2021. "The effect of a soft drink tax in Mexico: evidence from time series industry data," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 65(2), pages 349-366, April.
    2. John Gibson & Bonggeun Kim, 2017. "30 Years of Being Wrong: A Systematic Review and Critical Test of the Cox and Wohlgenant Approach to Quality-Adjusted Prices in Demand Analysis," Working Papers in Economics 17/16, University of Waikato.
    3. John Gibson & Alessandro Romeo, 2017. "Fiscal-Food Policies are Likely Misinformed by Biased Price Elasticities from Household Surveys: Evidence from Melanesia," Asia and the Pacific Policy Studies, Wiley Blackwell, vol. 4(3), pages 405-416, September.
    4. Levasseur, Pierre, 2021. "Do junk food bans in school really reduce childhood overweight? Evidence from Brazil," Food Policy, Elsevier, vol. 99(C).
    5. Gibson, John & Kim, Bonggeun, 2019. "Quality, quantity, and spatial variation of price: Back to the bog," Journal of Development Economics, Elsevier, vol. 137(C), pages 66-77.

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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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