The Incidence of Taxes on Sugar-Sweetened Beverages: The Case of Berkeley, California

John Cawley, David Frisvold

NBER Working Paper No. 21465
Issued in August 2015
NBER Program(s):   CH   HC   HE   LE   PE

One of the most commonly-proposed policies to address the high prevalence of obesity is a tax on energy-dense foods, in particular sugar-sweetened beverages (SSBs). This is based on the assumption that such taxes are largely passed through to consumers in the form of higher retail prices, leading to reduced consumption. However, relatively little is known about the extent to which taxes on SSBs are in fact passed through to consumers.

We estimate the pass-through of the first city-level tax on SSBs in the U.S., which was enacted by the voters of Berkeley, California in November, 2014. We collected the prices of various brands and sizes of SSBs and other beverages before and after the implementation of the tax from a near-census of convenience stores and supermarkets in Berkeley, California. We also collected prices from stores in a control city: San Francisco, where in 2014 a similar voter referendum failed despite majority support.

Estimates from difference-in-differences and other models consistently indicate that there was relatively little pass through of the Berkeley SSB tax to consumers; across brands and sizes, we estimate that retail prices rose by less than half of the amount of the tax. This is in contrast to much of the previous literature on the pass-through of taxes, which tended to find full or even overshifting of taxes.

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Document Object Identifier (DOI): 10.3386/w21465

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