Description: Labor-Public-Applied Economics Workshop

Location: 368A Heady Hall

Contact: John Winters

Title: Taxing the Sweet Tooth: The Differential Impact of Large Sales Tax Changes

Abstract: This paper provides the first comprehensive multi-state evidence on the causal impact of large, discrete sales tax reclassifications of soda and candy across five U.S. jurisdictions between 2009 and 2018. Rather than marginal tax differences or explicit city-level excise taxes, the analysis exploits substantial state-level reclassifications implemented with staggered adoption. These quasi-experimental fiscal shocks extended general sales tax rates to previously exempt items. Using weekly retail scanner data and Synthetic Difference-in-Differences models, the analysis finds that removing reduced rates led to measurable and statistically significant declines in soda purchases, while effects for candy were small and insignificant. The differential response likely reflects differences in budget share and purchase patterns: soda is a habitual, higher-share good whose prices consumers learn over time, whereas candy tends to be a low-salience, impulse purchase. Event-study estimates show gradual adjustment over several quarters, suggesting slow information diffusion and behavioral adaptation rather than immediate price recognition. Estimated price responses imply near-complete pass-through, as expected given that sales taxes are applied at checkout rather than embedded in posted prices. Back-of-the-envelope calculations indicate annual revenue gains of roughly $4–$17 million per state and annual per-capita sugar reductions ranging from several hundred to about 1,800 grams. Overall, the findings demonstrate that restructuring existing sales tax exemptions—without new excise mechanisms—can modestly reduce soda consumption while expanding fiscal capacity, highlighting the potential of “implicit sin taxation” as a politically feasible and behaviorally relevant policy instrument.