Taxing Sweets: Sweetener Input Tax or Final Consumption Tax?

Zhen Miao, John C. Beghin, Helen H. Jensen
July 2010  [10-WP 510]

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Suggested citation:

Miao, Z., J. Beghin, and H. Jensen. 2010. "Taxing Sweets: Sweetener Input Tax or Final Consumption Tax?" Working paper 10-WP 510. Center for Agricultural and Rural Development, Iowa State University.


Abstract

In order to reduce obesity and associated costs, policymakers are considering various policies, including taxes, to change consumers' high-calorie consumption habits. We investigate two tax policies aimed at reducing added sweetener consumption. Both a consumption tax on sweet goods and a sweetener input tax can reach the same policy target of reducing added sweetener consumption. Both tax instruments are regressive, but the associated surplus losses are limited. The tax on sweetener inputs targets sweeteners directly and causes about five times less surplus loss than the final consumption tax. Previous analyses have overlooked this important point.

Keywords: added sweeteners, consumption tax, demand, health policy, soda tax, sugar.