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TAXING SWEETS: SWEETENER INPUT TAX OR FINAL CONSUMPTION TAX?

Authors

  • ZHEN MIAO,

    1. Miao: Department of Economics and Center for Agricultural and Rural Development, Iowa State University, Ames, IA 50011-1070. Phone (515) 294-1183, Fax (515) 294-6336, E-mail zhenmiao@iastate.edu
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  • JOHN C. BEGHIN,

    1. Beghin: Department of Economics, Iowa State University, Ames, IA 50011-1070. Phone (515) 294-5811, Fax (515) 294-0221, E-mail beghin@iastate.edu
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  • HELEN H. JENSEN

    1. Jensen: Department of Economics and Center for Agricultural and Rural Development, Iowa State University, 578 Heady Hall, Ames, IA 50011-1070. Phone (515) 294-6253, Fax (515) 294-6336, E-mail hhjensen@iastate.edu
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    • The authors acknowledge partial financial support from USDA under the National Research Initiative Program (2006-55215-16720). Beghin also acknowledges support from the Marlin Cole Professorship. This paper is based on a longer paper (Miao, Beghin, and Jensen 2010), which contains detailed derivations, computations, and extensions. We thank Julian Alston, Peter Orazem, Dan Sumner, Steve Vosti, and workshop participants at UC Davis, Iowa State University, and the 2010 AAEA meetings for comments and discussions.


Abstract

Policymakers are considering various policies to reduce obesity and its associated costs, including consumption taxes on high-calorie foods and specifically sweetened foods. We investigate two tax policies to reduce added sweetener consumption: a consumption tax on sweetened goods and a sweetener input tax. Both tax instruments can reach the same policy target of reducing added sweetener consumption and are found to be regressive. The tax on sweetener inputs targets sweeteners directly and leads to a loss in consumer surplus that is only one-fifth of that caused by the final consumption tax. Previous analyses have overlooked this important point. (JEL I18, Q18)

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