Hand-to-Mouth Consumption and Calorie Consciousness: Consequences for Junk-Food Taxation

Abstract

Junk-food taxes have had mixed effects on obesity and junk-food consumption. We build a theoretical model to explain those empirical results and better understand how to address the obesity crisis. In our framework, hand-to-mouth consumer's make an intertemporal choice between food consumption and weight loss. Their choice depends on calorie consciousness, which is determined by relative prices and educational attainment. Thus, a junk-food tax modifies consumer's intertemporal choices both through their budget constraint and calorie consciousness. As a result, the effect of the tax on overweight reflects competing income, intertemporal substitution, and calorie consciousness effects. The model explains empirical observations such as the recent rise in obesity and differences in weight outcomes for different income levels. The model explains circumstances under which junk-food taxes can be effective or ineffective to reduce overweight, as well as differences in price-elasticities of high-calorie food consumption for high and low income earners.