Thursday, March 11, 2010

Questions: On Food Taxes to Fight Obesity?

One of the popular proposed mechanisms for fighting obesity has been various proposed food taxes. At the least, states looking to raise taxes seem to be using this as a justification for moving on the food taxes. Consider this recent article:
According to a new study published in the Archives of Internal Medicine, increasing the price of soda by 18 percent would result in a decrease in overall sales, leading to fewer calories a day for regular soda-drinkers.

For years, nutrition experts have recommended a federal tax on soda and other sugary drinks to cut consumption of high-calorie, unhealthy drinks and to help obese Americans lose weight.

Just for the sake of argument, let's accept the following propositions as being true: An obese individual confers a negative externality upon others. Taking this as a given, here are my questions:

  1. Why is it to be believed that the obese (or potentially obese) are unaware of the social consequences of their weight? This explanation is necessary to justify an obesity motivated tax on Pigouvian grounds.
  2. How would you reconcile this argument with the near universal view that society places too much emphasis on body image?

1 comment:

Pavel Yakovlev said...

I am very skeptical of the "fat tax" for several positive (objective) reasons.

First, obesity is hardly a real (technological) externality. It is more likely a pecuniary externality, meaning the obese drive up the cost of health care and other services just like the SUV drivers drive up the cost of gasoline. That's simple demand and supply.

However, if health care is delivered with very strong moral hazard tendencies, then the obese may not bear the full burden of their decisions and will create technological externalities.
Even if the above argument is true, it is not clear that taxing sodas or certain other types of fatty foods will prevent people from finding "fatter" alternatives. In fact, people might end up eating things that are even worse for your health, resulting in a myriad of other concerns.

In summary, I think that the obese people bear most of the cost of their actions. Furthermore, knowing how badly the government implements taxes, I suspect there will be some serious unintended consequences if a "fat tax" actually makes it through.