Berkeley Soda Tax Falls Flat

An ordinance in Berkeley, California that intended to impose a tax on distributors of sugar-sweetened beverages, has so far failed to raise the prices of those drinks by what was expected. The purpose of this tax was to discourage soda consumption by raising retail prices.

A study conducted by John Cawley of Cornell and David Frisvold of the University of Iowa found that prices for those beverages affected by this law rose by less than half of the tax amount and for Coke and Pepsi, only 22 percent of the tax was passed on to consumers. The results surprised the scholars because previous research had predicted that the tax would be fully passed through to consumers.

Taxes like this are designed to improve public health by discouraging people from purchasing unhealthy products. Smoking rates in the U.S. have declined partly because taxes have driven up the price of cigarettes.

The study offers several advantages over previous research on soda taxes:

– The research team visited nearly all Berkeley retail outlets and gathered prices for a variety of products.
-They collected data on prices before and after the tax hike on regular and diet drinks.
– They collected data from a comparable sample in nearby San Francisco to account for trends in prices over time.

Cawley and Frisvold believe the reason this initiative didn’t work as expected was because it’s a city tax and store owners were concerned about the ability of consumers to shop at stores outside of Berkeley.

They agree that taxing only sugar-sweetened beverages is a narrow form of internalizing the external costs of obesity because there are many other processed foods that cause this health issue.

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