Do Taxes for Soda and Sugary Drinks Work? Scanner Data Evidence from Berkeley and Washington

Abstract

Curbing obesity through taxation of certain beverage products has been a priority in the policy agenda across many U.S. jurisdictions. We assess the effectiveness of this highly debated policy instrument through two measures of its impact: the pass-through rate (the extent to which the tax actually translates into a retail price increase) and the impact on consumption (volume sales). We evaluate the actual effect of two excise taxes on the beverages market: the sugar-sweetened-beverages (SSB) tax of 1¢ per ounce in the city of Berkeley that has been effect since 2015 and the tax of 1/6¢ per ounce on carbonated drinks (soda) that the state of Washington imposed from July through December of 2010. We carry out the analysis with a barcode-level dataset containing price and volume sales information from a large number of retail outlets. Our identification relies on sales data from stores located in taxed areas as well as from stores in nearby localities. We find differences across the two tax events on pass-through: retail prices in Washington reacted sharply (by a larger magnitude than the tax) and promptly whereas in Berkeley retail prices reacted only marginally (by less than 30% the magnitude of the tax). In terms of volume sales, we find a 5% volume reduction in Washington but fail to find any evidence of an effect in Berkeley.