Miao, Zhen; Beghin, John C.; Jensen, Helen H.

Forthcoming in Health Economics (Originally published as WP #10040, November 2012 (Revised on October 3, 2011)
expanded analysis for sugar and solid fat)

We extend the existing literature on food taxes targeting obesity. We systematically incorporatethe implicit substitution between added sugars and solid fats into a comprehensive food demandsystem and evaluate the effect of taxes on sugars and fats. The approach conditions how foodand obesity taxes affect total calorie intake. The proposed methodology accounts for the abilityof consumers to substitute leaner low-fat and low-sugar items for rich food items within the samefood group. This substitution is integrated into a calibrated demand system in addition to thesubstitution among food groups, using recent food intake data and existing demand elasticities.Simulations of taxes on added sugars and solid fat show that their impact on consumptionpatterns is understated and the induced welfare loss is overstated when abstracting from thesubstitution possibilities within food groups.

JEL Classification: I18, Q18

Keywords: sugar, obesity, fat, food demand, health policy nutrition, low-fat and low-sugar substitutes, sweeteners tax.

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