Do Local Soda Taxes Affect Prices and Consumption? A Tale of Two Cities

Abstract

Many US cities have voted on or are considering soda taxes due in part to the growing literature about soda's negative health effects. However less is known about supplier and consumer responses to such taxes, particularly when they are implemented at a local rather than national level. Responses to local taxes could differ due to general equilibrium effects and institutional factors. In addition, more opportunities for avoidance may generate unintended consequences that have important policy implications. Rather than aggregating to the city level, this study leverages the high-frequency and high dimensional aspects of the Nielsen scanner data to investigate how prices and consumption of various goods change in response to local soda taxes. Comparing the cases of Berkeley and Philadelphia highlights which findings are constant across these very different cities and are likely to generalize to other local soda taxes. The results indicate incomplete pass-through rates that decline with beverage container size and moderate decreases in consumption of both diet and regular soda. Supply and demand elasticities can be separately identified using the tax as an instrument.