Will the consumption tax on sugar-sweetened beverages help promote healthy beverage consumption? Evidence from urban China

Abstract

The consumption of sugar-sweetened beverages (SSBs) in China is rising rapidly and has become a major source of added sugar, which may pose a threat to human health. Intervention policies represented by consumption tax may be introduced to reduce sugar consumption. Few studies have addressed the consumption tax on SSBs in emerging countries like China, where beverage consumption is increasing considerably. Based on the scanner data of Chinese urban households from 2014 to 2017, this paper used the Quadratic Almost Ideal Demand System (QUAIDS) model to estimate the Marshallian (uncompensated) price elasticity of various beverages. We then conducted a simulation of the effect of the consumption tax on the consumption of sugar-sweetened beverages. The simulation results under different tax rates suggest that the tax on SSBs will significantly reduce the consumption of SSBs and bring about a slight increase in the consumption of diet drinks, thereby promoting beverage consumption in the low-calorie direction. This effect was particularly obvious in low-income groups with a smaller tax burden, unlike the situation in developed countries represented by the U.S. The findings imply that the consumption tax on SSBs is conducive to lowering added sugar intake and, as a result, reducing obesity. China should levy a consumption tax on SSBs and all sugar-sweetened foods in the future. Tax revenue can be used to fund research and development to reduce the production costs of sugar-free foods and encourage healthy eating behavior.