Read the two articles on taxing of soda and sugared beverages: “Cato Soda Tax” and “Ounce of Prevention” under readings on Blackboard|Quick homework help

Posted: February 15th, 2023

1)Read the two articles on taxing of soda and sugared beverages: “Cato Soda Tax” and “Ounce of Prevention” under readings on Blackboard . Answer the following questions about those readings

 

a) What is the major argument of in favor of taxing soda? Use economic terminology.

 

 

 

 

 

b) Taxing of soda is presumed to increase tax revenue. Does the way in which this increased revenue is spent influence policy outcomes? Explain why.

 

 

 

c) What are the major arguments against taxing soda according to the critics of the proposed tax?

 

d) A larger percentage of African-Americans are obese.

i) Given the information provided in the articles about soda consumption among African-American, how might a soda tax impact obesity among this population? (2 points)

 

 

ii) What other suggestions do you have to address obesity among African-American population using a similar tax?

 

2) A recent study (hypothetical) suggests that the top two U.S. drug companies involved in research and development to produce anti-viral drugs (such drugs to combat flu, Ebola, HIV, etc.) have a return on investment of 40% for their marketing and advertising efforts for existing drugs. In other words, for every dollar spent on marketing existing drugs, the company receives $1.40 in earnings resulting in a 40-cent profit. These same two companies only have a 25% return on investment for research and development activities related to new drug development. Company executives are considering a major shift in resources away from drug development to increase advertising and marketing of existing drugs. Doing so will yield increased profitability for shareholders.

 

a) What might justify a government response to the companies’ plans to shift away from R&D? Be sure to utilize economic terminology in your answer

 

 

 

b) What policy solution would you recommend? Explain how it would address the economic problem you identified in part a using economic terminology

 

 

 

3) Consider the following scenarios related to asymmetric information:

a) Your sister did not have life insurance and recently discovered she has a terminal illness. She has decided to purchase a $2 million life insurance policy.

i) What type of asymmetric information problem is this?

 

 

 

 

ii) Describe a way the private sector can address this information asymmetry?

 

 

 

 

 

b) You recently purchased a new iPhone along with an insurance plan against theft, loss, or damage. Your friend asked why you didn’t purchase a protective case for your phone. You replied, “I’m not worried. I have insurance!”

i) What type of asymmetric information problem is this?

 

 

 

ii) Describe a way the private sector can address this information asymmetry?

34 REGULATION FA L L 2 0 1 0

H E A L T H & M E D I C I N E

oughly one-third of U.S. adults are clas- sified as obese, which is defined as hav- ing a body mass index of 30 or higher. Obesity rates for most all age and gender groups exceed 30 percent, with men aged 20 to 39 years being the lone exception. Obesity is especially prevalent among

minorities; African-Americans have a 51 percent higher preva- lence of obesity, and Hispanics have 21 percent higher obesi- ty prevalence than whites.

Obesity has become a major public health concern, given its association with chronic conditions that include diabetes, hypertension, high cholesterol, stroke, heart disease, certain cancers, and arthritis. Excess mortality stemming primarily from cardiovascular disease and diabetes is also believed to be associated with higher grades of obesity. Researchers at the Centers for Disease Control and Prevention in Atlanta esti- mate that obesity now accounts for 9.1 percent of all medical spending — $147 billion in 2008.

Various factors are believed to promote rising obesity rates, but the hypothesized relationship between “nutritively sweet- ened beverages” (NSBs) and obesity has increasingly become the focus of attention. Some public health advocates call for Pigouvian taxes (see “Much Ado about Pigou,” Spring 2010) on these beverages, often referred to as “soda taxes,” as effec- tive interventions that will lower obesity as well as generate tax revenues that can be used to fund public programs aimed at lowering obesity.

In this article, we discuss the economic theory and empir- ical evidence of using soda taxes to lower obesity. We conclude that these taxes are unlikely to significantly lower obesity, and that they promote many unintended consequences that may adversely affect public health. Higher tax revenues stemming from soda taxes are also likely to be used to expand govern-

R

Michael L. Marlow and Alden F. Shiers are professors of economics at California

Polytechnic State University in San Luis Obispo.

Taxes on sugary beverages would do little to lower obesity.

Would Soda Taxes Really Yield

Health Benefits? BY MICHAEL L. MARLOW AND ALDEN F. SHIERS

California Polytechnic State University

ment programs other than those associated with controlling obesity, much as cigarette tax revenue now does.

FLAWS IN THE ECONOMIC CASE FOR SODA TAXES

Proponents of soda taxes argue for government intervention because, they say, free markets fail to allocate resources in soda markets efficiently, with the ultimate consequence being too many obese people. Three assumptions underlie their argument:

n Soda causes obesity. n Consumers lack adequate information and beverage choices. n Soda drinkers impose external costs on others who pick up some portion of obese people’s higher med- ical costs.

Let us consider each of these assumptions.

Soda causes obesity? The correlation between soda con- sumption and obesity rates does not imply that soda con- sumption causes obesity. Other possibilities include obesity causes soda consumption, no relationship exists between soda consumption and obesity, and soda consumption and obesity are interdependent. Moreover, even if soda con- sumption did cause obesity, there is no reason to believe that soda is the lone causal factor behind obesity; other like- ly candidates include lack of exercise, age, genetics, con- sumption of other high-calorie foods and beverages, and many other factors.

Tax advocates claim that soda consumption causes obesi- ty, but evidence demonstrating this casual link is weak at best. A 2006 review article by Vasanti Malik et al. of the rela- tionship between the consumption of sugar-sweetened bev- erages and obesity found 16 studies indicating a significant positive relationship between consumption and body mass index, 10 studies that did not find a significant positive rela- tionship, and four studies with mixed results. A 2007 literature

REGULATION FA L L 2 0 1 0 35

review by Lenny Vartanian et al. found eight studies with a significant positive relation- ship, 15 studies with no sig- nificant positive relationship, and two studies with mixed results.

Although the authors of these surveys conclude that the evidence supports the view that soda consumption causes obesity, we suggest the evidence remains less than clear. Most articles in their surveys demonstrate correla- tion and not causation, and ignore confounding factors such as age, exercise, genetics, and other factors that proba- bly affect body weight. The Malik survey acknowledges this point:

Overall, results from our review support a link between the consumption of sugar-sweetened bever- ages and the risks of over- weight and obesity. However, interpretation of the published studies is complicated by several method-related issues, including small sample size, short duration of follow-up, lack of repeated measures of dietary exposures and outcomes, and confounding by other diet and lifestyle factors.

A recent commentary by David Allison and Richard Mattes in JAMA: The Journal of the American Medical Association acknowledges this same point:

Given current evidence, lit- tle can be concluded with confidence beyond the fact that requiring individuals to drink large amounts of NSBs causes greater weight gain than not doing so. Randomized controlled trials of NSB consumption reduction have been applied effectiveness studies rather than rigorously controlled efficacy studies. Only the latter ensures fidelity of the inter- vention.

The authors conclude that much of the research and subsequent news reports surrounding the issue have been extensively influ- enced by multiple biases that have eroded the reporting of objective science on this important public health matter.

Unempowered consumers? Some soda tax advocates claim that consumers drink too much soda as a result of inadequate access to healthier food and beverage choices. But there are roughly 40,000 food products in the typical U.S. supermar- ket. It is difficult to argue that this array of products some- how ignores consumer preferences, especially given compet- itive pressures and technological advances in processing, storage, transportation, and communication.

The growing variety of food products reflects an industry that adapts to consumer preferences regarding health-relat-M

O R G A N B

A L L A R D

ed choices. Between 1987 and 2004, 35,272 new food products labeled “low fat” or “no fat” were introduced into the U.S. food market. That led researchers at the U.S. Department of Agriculture to conclude that unhealthy food consumption patterns do not stem from a market failure to supply healthy food and beverage choices.

While regular soda accounts for roughly 70 percent of U.S. soda sales, diet soda sales have been growing rapidly. Some forecasters predict that diet sales will eventually over- take regular soda. It thus seems that an active private market exists in providing “healthy” choices to consumers, which sug- gest that there is little need for government intervention into soda markets.

Externalities? Soda tax advocates argue that negative exter- nalities — external costs not fully accounted for in markets — indicate a market failure in which too much soda is con- sumed. Externalities are argued to exist because consumers who become obese will not fully pick up the higher medical costs associated with their obesity. Taxes equal to these exter- nal costs would theoretically raise soda prices to levels con- sistent with efficient consumption levels.

However, it is unlikely that taxes could ever correct for any externality associated with obesity. The problem with the externality argument is that, even if obesity raises health care costs of the obese, this externality should be corrected by ha

The NEW ENGLAND JOURNAL of MEDICINE

april 30, 2009

1805n engl j med 360;18 nejm.org april 30, 2009

The obesity epidemic has in- spired calls for public health

measures to prevent diet-related diseases. One controversial idea is now the subject of public debate: food taxes.

Forty states already have small taxes on sugared beverages and snack foods, but in the past year, Maine and New York have pro- posed large taxes on sugared bev- erages, and similar discussions have begun in other states. The size of the taxes, their potential for generating revenue and reduc- ing consumption, and vigorous opposition by the beverage indus- try have resulted in substantial

controversy. Because excess con- sumption of unhealthful foods underlies many leading causes of death, food taxes at local, state, and national levels are likely to remain part of political and pub- lic health discourse.

Sugar-sweetened beverages (soda sweetened with sugar, corn syrup, or other caloric sweeteners and other carbonated and uncar- bonated drinks, such as sports and energy drinks) may be the single largest driver of the obe- sity epidemic. A recent meta- analysis found that the intake of sugared beverages is associated with increased body weight, poor

nutrition, and displacement of more healthful beverages; in- creasing consumption increases risk for obesity and diabetes; the strongest effects are seen in stud- ies with the best methods (e.g., longitudinal and interventional vs. correlational studies); and in- terventional studies show that re- duced intake of soft drinks im- proves health.1 Studies that do not support a relationship between consumption of sugared bever- ages and health outcomes tend to be conducted by authors support- ed by the beverage industry.2

Sugared beverages are market- ed extensively to children and adolescents, and in the mid-1990s, children’s intake of sugared bev- erages surpassed that of milk. In the past decade, per capita intake of calories from sugar-sweetened beverages has increased by nearly 30% (see bar graph)3; beverages now account for 10 to 15% of the

Ounces of Prevention — The Public Policy Case for Taxes on Sugared Beverages Kelly D. Brownell, Ph.D., and Thomas R. Frieden, M.D., M.P.H.

Sugar, rum, and tobacco are commodities which are nowhere necessaries of life, which are become objects of almost universal consumption, and which are therefore extremely proper subjects of taxation.

Adam Smith, The Wealth of Nations, 1776

Copyright © 2009 Massachusetts Medical Society. All rights reserved. Downloaded from www.nejm.org on April 9, 2010 . For personal use only. No other uses without permission.

PERSPECTIVE

1806 n engl j med 360;18 nejm.org april 30, 2009

calories consumed by children and adolescents. For each extra can or glass of sugared beverage consumed per day, the likelihood of a child’s becoming obese in- creases by 60%.4

Taxes on tobacco products have been highly effective in reducing consumption, and data indi- cate that higher prices also reduce soda consumption. A review conducted by Yale University’s Rudd Center for Food Policy and Obesity sug- gested that for every 10% in- crease in price, consumption decreases by 7.8%. An indus- try trade publication report- ed even la

 

SOLUTION