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.
Highlights
The global prevalence of obesity has increased dramatically since 1980 [1]
We see that own-price elasticity estimates are different between low- and high income households, with high-income households own-price elasticities being larger for all FAH categories except sweets and snacks
In this study we present the estimates of changes in purchases, tax burden and welfare of three different policy scenarios: taxes on unhealthy foods and beverages, a removal of an existing value-added tax (VAT) for fruits and vegetables, and a combination of these two fiscal policies
Summary
The global prevalence of obesity has increased dramatically since 1980 [1]. More than one in two adults and nearly one in six children are overweight or obese in the OECD area [2], with increased risk of several non-communicable diseases (NCD) [3, 4]. In response to the obesity and NCD crises, governments have become increasingly interested in implementing fiscal policies to curb unhealthy food consumption. Combined fiscal policies to promote healthier diets
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