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It depends on how high the tax is and how elastic the demand for soda is. If the soda tax isn't high enough than people will continue purchasing and pay the tax
by profgubler 16y ago
It depends on how high the tax is and how elastic the demand for soda is. If the soda tax isn't high enough than people will continue purchasing and pay the tax. An extra couple of cents on a can of soda likely won't change consumption and will only hurt the poor more.
I am guessing that the elasticity of soda is a lot higher than cigarettes so it would take a lot smaller of a tax to change behavior. And to be honest most sin taxes are really not there to change consumption they are their to make money because they know people will pay for it.
Look at the recent increase in the cigarette tax that is supposed to pay for S-Chip. They don't want smokers to smoke less, because that would reduce revenue and prevent them from paying for the program. They set the taxes at a level that will maximize revenue and not greatly affect consumption.
Update: I just read here http://seekingalpha.com/instablog/137417-wall-street-strategies/27919-soda-tax-a-health-concern-or-just-another-tax http://seekingalpha.com/instablog/137417-wall-street-strateg... that the new england journal of medicine says that the price elasticity of demand for soda is -.8. What that means is that demand for soda is inelastic. This means that soda is just like any other sin tax. It is not meant to actually reduce consumption. It is meant to create revenue. Yes some people will consume less, but the vast majority will not consume less. So I hate to say it, but this isn't a tax for the health of the American public, but a tax for the wallet of government.
- yummyfajitas 16y agoThere are two purposes to a sin tax: reducing consumption or compensating society for the loss caused by the sin. A perfect sin tax is set at such a level that no one needs to care which one occurs. If a soda drinker inflicts $0.03 / soda on society, the perfect sin tax would also be $0.03. In such a regime, I don't care how much soda you drink since you are paying for your own health care via the sin tax.
- profgubler 16y agoYes, the externality is being paid for in that instance, which depending on your viewpoint is a good thing. But if that is the case that we only want to pay for your stupidity in drinking soda, than they shouldn't be pitching something that is for the health of the people, because it isn't. Which brings us to the entire problem of a government run health care program. Anything deemed bad for us will be taxed and pitched as the fact that it is for the health of the people instead of to cover the costs of your choices on society. And yes, I realize that a person who drinks a soda in a free market healthcare system still affects the cost of my insurance, however it is to a far less extent than when I am the one paying for my neighbors drink.
- radu_floricica 16y agoI like how you're so optimistic that you imagine somebody actually checked the elasticity when considering this tax. I'd have guessed a big enough tax might make natural juice more competitive. I don't think you have many people who'd prefer Fanta over a natural, carbonated juice - at the same price.