Stephan Seiler, Anna Tuchman, Song Yao

Price-based interventions are widely considered by policy makers as a tool to shift customers’ behavior. This paper investigates one such policy intervention where a local government imposed a tax on sweetened beverages in order to discourage unhealthy food consumption and fight obesity and diet-related diseases. Through an extensive set of analyses, we document the effect of the tax on retailers’ pricing decisions and market demand for taxed products and substitutes. We show that the tax on sweetened beverages has had limited effects in reducing total consumption or leading to a shift in consumption towards healthier products. Furthermore, the financial burden is the highest for low income households, while higher income households avoid the tax by driving to stores outside the taxed zone.