Combined Fiscal Policies to Promote Healthier Diets: Effects on Purchases and Consumer Welfare

Citation

Caro, Juan Carlos; Valizadeh, Pourya; Correa, Alejandrina; Silva, Andres; & Ng, Shu Wen (2020). Combined Fiscal Policies to Promote Healthier Diets: Effects on Purchases and Consumer Welfare. PLOS ONE, 15(1), e0226731. PMCID: PMC6961856

Abstract

Taxes on unhealthy foods and sweetened beverages, as well as subsidies to healthy foods, have become increasingly popular strategies to curb obesity and related non-communicable diseases. The existing evidence on the welfare effects of such fiscal policies is mixed and almost uniquely focused on tax schemes. Using the 2016-2017 Chilean Household Budget Survey, we estimate a censored Exact Affine Stone Index (EASI) incomplete demand system and simulate changes in purchases, tax incidence, and consumer welfare of three different policy scenarios: (1) a 5 percentage point additional tax on sweetened beverages (currently taxed at 18%) and a new 18% tax on sweets and snacks, (2) a healthy subsidy by zero-rating fruits and vegetables from the current 19% value-added tax, and (3) a combined (tax plus subsidy) policy. Under full pass-through of these policies, the combined scheme captures the incentives to switch purchases from both single-policy alternatives, resulting in a net welfare gain and subsidy transfer for the average Chilean household. In terms of welfare, low-income households strictly benefit from a combined policy, while high-income households experience a small consumer welfare loss, resulting in re-distributional effects.

URL

http://dx.doi.org/10.1371/journal.pone.0226731

Reference Type

Journal Article

Year Published

2020

Journal Title

PLOS ONE

Author(s)

Caro, Juan Carlos
Valizadeh, Pourya
Correa, Alejandrina
Silva, Andres
Ng, Shu Wen

Article Type

Regular

PMCID

PMC6961856

Data Set/Study

Chilean Household Budget Survey

Continent/Country

Chile

ORCiD

Ng - 0000-0003-0582-110X
Valizadeh - 0000-0001-9564-4754