IB Economics Internal Assessment Cover Sheet

Article Title : Taxes on sugar-sweetened drinks drive decline

in consumption

Article Source: Berkeley Public health

The date article was published: January 5, 2024

The date IA was written: February 3, 2024

The word count of the commentary:580

The unit of the syllabus covered: Microeconomics

The key concept covered: Government Intervention (Taxes)

Web source:
https://publichealth.berkeley.edu/news-media/research-
highlights/taxes-on-sugar-sweetened-drinks-drive-decline-
in-consumption/
Taxes on sugar-sweetened drinks drive decline
in consumption
Written By: Elise Proulx

A new study by researchers at UC Berkeley—including those at UC

Berkeley School of Public Health and the Department of Agricultural and
Resource Economics—and elsewhere shows that after excise taxes were
placed on sugary beverages, purchases declined dramatically and steadily
across five American cities.

Although other studies have evaluated the impact of beverage excise taxes
—taxes on a per ounce basis–in a single city, this is one of the first that
estimates the impact of local excise taxes on purchases and prices of
sugar-sweetened beverages across multiple large cities. The cities
included Boulder, Philadelphia, Oakland, Seattle, and San Francisco, all of
which implemented taxes between January 1, 2017, and January 1, 2018.

Sugar-sweetened beverages—such as sodas, fruit drinks, sports drinks,

energy drinks, and sweetened coffee drinks—are the leading source of
added sugars in the American diet, according to the Centers for Disease
Control and Prevention. They are associated with serious negative health
outcomes, including type 2 diabetes, obesity, heart disease, kidney
disease, non-alcoholic liver disease, gum disease, tooth decay, and other
conditions.

Taxes on these types of beverages are promoted as a key policy to hold

beverage companies accountable for and reduce the health harms
associated with their products, but comprehensive analyses of such taxes
have been difficult due to the absence of sufficiently large samples of data
and methodological limitations.

“Estimating a more general, more accurate impact of local sugar-

sweetened beverage taxes in the US provides greater insight into the
overall effectiveness of these taxes,” said study lead author, Scott Kaplan,
who is an economics professor at the United States Naval Academy.
Kaplan received his PhD from the UC Berkeley Department of Agricultural
and Resource Economics in 2021. “This study may better inform the
potential effectiveness of SSB taxes at the state or federal level.”

This new study builds on an earlier study that looked only at data from
the city of Oakland.
The new study found that retail prices of sugar-sweetened beverages
increased by 33.1% over the two years following tax implementation in
each city studied, and that there was a corresponding decrease in
purchases of 33% over the same timeframe. The price increase and
purchase decreases appeared immediately after the taxes were
implemented and continued to be sustained months later. At the same
time, there was no evidence that consumers were travelling to bordering
areas without sweetened beverage taxes to make purchases there.

This study’s findings suggest that “these taxes are quite effective in terms
of health outcomes and societal cost-savings,” said Kaplan. He hopes this
may lead to similar policy action in other locations across the country, and
at the state and national levels, as was done with tobacco taxes.

A previous study co-authored by Dr. Kristine A. Madsen of UC Berkeley

School of Public Health showed that tax revenue from sugar-sweetened
beverage (SSB) excise in seven cities were used to support initiatives to
improve community health, develop human and community capital, and
advance equity.

Commentary:
The article above discusses the research carried out by
researchers at UC Berkeley regarding the impact of imposing
excise taxes on drinks including sugar in five American cities.
The cities included were Boulder, Philadelphia, Oakland,
Seattle, and San Francisco, all of which implemented taxes
between January 1, 2017, and January 1, 2018. This article
portrays the negative effects of sugar-sweetened drinks in the
health of people. It also has several statistics and important
data on the price rate, purchasing rate of consumers and
different studies carried out before relating to taxes on sugary
drinks. In general, This article has outlined the relation of
declining purchasing rate of sugary drinks with the taxes
implemented.

Here, Government intervention through the tax system is

affecting the market of sugar-sweetened drinks. Government
intervention is the interruption made by the government in order
to change individuals, firms or organisation's decisions in the
market. Similarly, Excise taxes/ sin taxes are the indirect taxes
added on the goods that are harmful for health. In this article,
The main reason for the government intervening is the negative
outcomes of sugary drinks in the health of citizens. If the
government hasn’t done this, the public finances would feel the
consequences in the long-term time period. They would need to
spend a lot in hospitals because of diseases like type 2
diabetes, obesity, heart disease, kidney disease, non-alcoholic
liver disease, gum disease, tooth decay etc. because they
didn’t stop it before. So, the ultimate goal of the government is
to stop these consequences.
In the figure given, Q1 is the price before imposing tax by the
government on that good and p1 is the price at that time.
Similarly, Q* and p* are the quantity and price after
implementation of tax. We can clearly see that when the tax
increases the price of the goods increases and the quantity
demanded decreases.This price-quantity graph shows the
change in demand according to the price. Likewise, In the
article above it is found that the retail prices of sugar-
sweetened beverages increased by 33.1% along with decrease
in purchases by 33% at the same time period after applying
excise tax. Moreover, When the government imposes tax the
price of production of that good increases and this leads to an
increase in prices of the good. Which will decrease the quantity
demanded, if the good is price elastic. Since, the tax is imposed
at a higher rate in this case, price increases drastically which
makes it more price elastic and quantity demanded will also
decline dramatically. So, the government chose to impose an
excise tax to decrease consumption in order to decrease the
diseases.

There are also a lot of disadvantages of imposing high taxes.

When the taxes on goods increase, the supply decreases
which could lower the employment rate of the country and
wages of the worker.It will also affect the speed of economic
growth of the country.This may also lead to social problems like
robbery. So, the government could implement some other
methods to decrease the consumption. For instance, the
Government could increase the number of negative
advertisement, increase public campaigns or subsidise other
similar drinks without sugar,etc.

When the government does any of the given examples, It will

make the public aware or attract them to other drinks without
sugar. This will shift the demand curve of sugar-sweetened
drinks towards left/ inward. In the graph, Quantity demanded
decreases from Q to Q1. The consumption/ purchasing rate of
sugary beverages could decline as shown in the figure.