A short-lived soda tax strengthens alternative estimates of the tax’s impact on consumer behavior: a study

One of the most common assumptions made by tax policy makers is that increasing taxes will increase government revenue. But a new study focused on Washington state’s soda tax strengthens another estimate of the tax’s impact on consumer behavior.

Researchers found that when Washington state enacted a soda tax, not only did it provoke a backlash in consumer markets and political arenas, but the associated tax repeal movement also led to a significant decline in soda consumption. did. In effect, after implementing the tax, Washington realized that the tax revenue would be lower than expected.

The study, published in the journal Marketing Science, was written by Andrew Chin of Johns Hopkins University and Daniel Goetz of the University of Toronto Mississauga. “evidence”.

“We decided to investigate whether a consumer’s level of consent to an insurance contract influences their response to that insurance contract in the marketplace,” Goetz says. “So when Washington state enacted an excise tax on soda, it became a natural experiment to see whether consumers who opposed the tax would reduce their consumption and whether that would affect tax revenue.”

In 2010, Washington state enacted a soda tax that was primarily touted as a way to increase tax revenue. That is, it is not promoted as a way to change unhealthy consumer choices. As a result of this tax, a grassroots movement formed to put the soda tax on electoral ballots, and voters ultimately voted to repeal the tax.

“We were able to use voter data and data that measured monthly soda demand while the tax was in effect. We combined that data with consumer shopping patterns and shoppers’ home locations to create a new metric. We then combined this with statewide grocery store price and quantity data.” says Goetz.

The study authors found that stores frequented by the tax protesters saw sales of affected beverage brands drop by as much as 53%. This decline in sales compares to spending trends in stores frequented by people who actually supported the soda tax.

“In the end, whether or not a consumption tax has the effect of increasing government revenue depends on how much support there is for the consumption tax.If there is strong opposition, the consumption tax will be effective.” You may find that you collect much less tax than you expected,” says Chin.