Perhaps the demand for pop is relatively inelastic, and the tax pays for the additional health programs the city expects to provide for the widebodies. Perhaps that's a private-public bundle. But if the tax induces all sorts of substitutions, there are neither revenues for the health programs, nor the widebodies making use of the health programs.Here's a Daily Caller report, still slow on the uptake.
Berkeley’s pioneering soda tax is failing to hit consumers as much as public health advocates had hoped, with stores only passing on 22 percent of the tax to customers.There's more work, coming out of Cornell University's College of Human Ecology, which suggests economists who understand tax incidence will never lack for work.
Berkeley, Calif. was the first city in the nation to vote for a soda tax, with supporters arguing the higher price would cut consumption of sugary drinks and help tackle obesity. The law took effect in March and forced distributors to pay a 1 cent tax per ounce of soda. However, Berkeley’s store owners have refused to play ball and have only passed on a fraction of the price increase to consumers.
“In light of the predictions of the proponents of the tax, as well as in light of the previous research, we expected to see the tax fully passed through to consumers,” said [John] Cawley, professor of policy analysis and management and of economics in Cornell’s College of Human Ecology. “In contrast, we find that less than half, and in some cases, only a quarter of it is. This is important because the point of the tax was to make sugar-sweetened beverages more expensive so consumers would buy, and drink, less of them.”Oy. Please copy the following into your notebook.
Raising significant tax revenue suggests a relatively inelastic demand. Ramsey-optimality means raising that revenue with the least excess burden (deadweight loss, for the traditionalist.)It gets better.
So-called “sin taxes” are designed to improve public health by discouraging people from purchasing unhealthy products. Smoking rates, for instance, have plummeted in the United States in recent decades partly due to federal, state and local taxes that have driven up cigarette costs. Berkeley officials hoped that the soda tax would raise prices and lead residents to avoid energy-dense sugar-sweetened beverages, considered a culprit for high rates of obesity and chronic disease.But if consumption rates fall, prices will rise by less than the full amount of the tax. This isn't the Maximum Principle, people. And, if I don't have enough to be aggravated about, there's this.
“There is an economic rationale for taxes when consumption of the good imposes negative externalities, and obesity costs taxpayers billions each year in medical care costs in the U.S.,” Cawley said. “A sugar-sweetened beverage tax is a very narrow approach to internalizing the external costs of obesity, because there are many other food and drink items that are also energy dense and lack nutritional value. But to the extent such a tax helps internalize the external costs, there is an economic rationale for it.”Strictly speaking, it's bundle pricing, not externality. The stuff that makes you fat is stuff that lands you in hospital, and metering the use of the stuff that makes you fat might be more efficient than allocating general revenues to the hospitals and clinics.