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Combined Fiscal Policies to Promote Healthier Diets: Effects on Purchases and Consumer Welfare

Citation

Caro, Juan Carlos; Valizadeh, Pourya; Correa, Alejandrina; Silva, Andres; & Ng, Shu Wen (2020). Combined Fiscal Policies to Promote Healthier Diets: Effects on Purchases and Consumer Welfare. PLOS ONE, 15(1), e0226731. PMCID: PMC6961856

Abstract

Taxes on unhealthy foods and sweetened beverages, as well as subsidies to healthy foods, have become increasingly popular strategies to curb obesity and related non-communicable diseases. The existing evidence on the welfare effects of such fiscal policies is mixed and almost uniquely focused on tax schemes. Using the 2016-2017 Chilean Household Budget Survey, we estimate a censored Exact Affine Stone Index (EASI) incomplete demand system and simulate changes in purchases, tax incidence, and consumer welfare of three different policy scenarios: (1) a 5 percentage point additional tax on sweetened beverages (currently taxed at 18%) and a new 18% tax on sweets and snacks, (2) a healthy subsidy by zero-rating fruits and vegetables from the current 19% value-added tax, and (3) a combined (tax plus subsidy) policy. Under full pass-through of these policies, the combined scheme captures the incentives to switch purchases from both single-policy alternatives, resulting in a net welfare gain and subsidy transfer for the average Chilean household. In terms of welfare, low-income households strictly benefit from a combined policy, while high-income households experience a small consumer welfare loss, resulting in re-distributional effects.

URL

http://dx.doi.org/10.1371/journal.pone.0226731

Reference Type

Journal Article

Journal Title

PLOS ONE

Author(s)

Caro, Juan Carlos
Valizadeh, Pourya
Correa, Alejandrina
Silva, Andres
Ng, Shu Wen

Year Published

2020

Volume Number

15

Issue Number

1

Pages

e0226731

PMCID

PMC6961856

Reference ID

12600