Obesity in America and the

1
Obesity in America and the Twinkie TaxAn
Analysis of a Proposed Policy to Encourage
Healthier Food Choices

• Emily Kearney
• June 4, 2007

2
The Obesity Pandemic

• United Nations, 2000
• For the first time, more people are obese (1 B)
  than malnourished (800 M)
• In just two decades,1980-2000...
• Obesity rates doubled for American adults and
  tripled for children.
• Obesity is a risk factor for many diseases
• Costs to the individual and society
• 117 B (61 B direct costs, 56 B indirect)

3
Economic Perspectives on Obesity

• Why are we suddenly so obese?
• More calories consumed, less burned, or both
• Technology (lower food prices and less exercise)
• U.S.- 10 of disposable income on food
• lowest in industrialized world, cheapest food
• Economic view- obesity is efficient for
  individual?
• People will maximize utility WRT budget, time
• Behaviors will change when benefits exceed costs
• Do we need financial incentives (tax) to
  internalize the costs of obesity to create
  behavior changes?

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Policy Measures Theory and Practical
Considerations

• Several states already have/had a tax but face
  industry pressures to eliminate
• Similar to other sin taxes internalize cost
• In theory
• Will induce behavior change by providing
  incentives to eat healthier foods (cheaper
  relatively)
• Tax revenues could be earmarked for nutrition
  education programs
• So would a tax induce behavior change and raise
  revenues? What does evidence suggest?
• would it be equitable? efficient? effective?

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Elasticity of Demand for Snack Foods

• there are four practical economic questions that
  must be addressed (Kuchler et al. 2005)
• First, how would such taxes change diets?
• Second, how much of a tax would be collected?
• Third, how big is the excess burden?
• Finally, on which consumers would the burden be
  imposed? All four questions depend on the price
  elasticity of demand for snack foods (20059)

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Poverty, Energy Cost and Obesity

• Multiple studies on effect of income level on
  diet quality
• Disproportionate rates of obesity among poor
• Drewnowski and Specter 2004-
• inverse relationship between energy costs and
  energy density
• the association between poverty and obesity may
  be mediatedby the lower cost of energy-dense
  foods and reinforced by the high palatability of
  sugar and fat (20046)

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Poverty, Obesity, and Energy Cost
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Elasticity and Income Level
Consumers with higher incomes are less responsive
to changes in prices
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Empirical Evidence Kuchler et al. 2005

• Two regressions
• 1) Establish elasticities of demand for
  different foods (potato chips, all chips, all
  salty snacks)
• 2) Predict decreased consumption and tax
  revenues at different tax rates (1, 10, 20)
• Results
• Demand is inelastic (potato chips, -.45)
• Even high taxes would not change consumption
  much. Low taxes would still generate
  considerable revenue.
• Question the effectiveness of education programs

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Empirical Evidence Schroeter et al. 2005

• Criticize Kuchler et al.
• Increased price may reduce demand but wont lead
  to weight loss if substitutes available
• what would the tax have to be to reduce weights
  to 1960 levels? Use price-weight elasticities
• Results
• A 1 tax would lower female weight by .44 and
  male weight by .31
• 0.72 lbs 0.59 lbs for avg female, male
• To reduce to 1960 levels, mens consumption of
  snack foods would have to be taxed 41 and
  womens 34.

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Conclusions

• Would have an impact if.
• Well-targeted
• Demand is elastic
• Consumers have a choice to switch to healthier
  foods
• More studies needed of elasticities of demand for
  foods potentially taxed
• Especially important is to investigate how people
  at different levels of income would be affected
• Potential for subsidies to low-income consumers
  to offset burden of tax? Are substitutes
  available?
• More studies needed on effectiveness of nutrition
  education programs

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Conclusions

• In the worst case (elastic poor and inelastic
  rich consumers and large income disparities), a
  tax on food may do little about obesity and
  increase undernourishment.
• In the best case (high level of equality, low
  food demand responsiveness), it will have a small
  impact on obesityand be an effective means to
  collect money that could be used to finance
  programs for nutrition education
• -Schmidhuber 2004 282

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References

• Drewnowski, A. and S.E. Specter, Poverty and
  Obesity The Role of Energy Density and Energy
  Costs, American Journal of Clinical Nutrition,
  79, 2004, pp. 6-16.
• Kuchler, F., Tegene, A., and J.M. Harris, Taxing
  Snacking Foods Manipulating Diet Quality or
  Financing Information Programs? Review of
  Agricultural Economics, 27(1), 2005, pp. 4-20.
• Schmidhuber, J., The Growing Global Obesity
  Problem Some Policy Options to Address It,
  Electronic Journal of Agricultural and
  Development Economics, 1(2), 2004, pp. 272-290.
• Schroeter, C., J. Lusk, and W. Tyner,
  Determining the Impact of Food Price and Policy
  Changes on Obesity, Ph.D Dissertation in
  Department of Agricultural Economics, Purdue
  University, 2005.