Wednesday 23 March 2016

Inputs and Outputs: Soda Tax edition

My flight back from Auckland over the weekend, cramped into a window seat with a large individual in the middle seat and nobody at all in the aisle seat, had me thinking again about soda and fat taxes.

I simply don't buy most of the fiscal externality arguments (costs to the public health system) for soda taxes. Yes, those who are obese have higher current medical costs than thinner folks. But thinner folks on average live longer and, on a lifetime assessment, cost more in some foreign studies. I've not seen domestic work on it.

But more importantly, for the fiscal externality argument to be anything other than just a transfer, we'd need to show that people actually change their consumption because we have a public health system. Remember that economists care about externalities to the extent that they change behaviour. If they don't, it's just a change in the identity of who pays the bill for something. If the number on the bottom of the bill doesn't change, it's not the kind of externality that causes problems.

And, again, if "the activity costs the health system money" is sufficient basis for tax and regulation to change behaviour, it is easier to list all of the things that shouldn't be taxed or subsidised than it is to list all the things that should be. Books probably shouldn't have a fat tax or be subsidised. Wait, no. Subsidise exercise books, tax cook books for desserts, subsidise healthy cook books. I'm having a hard time thinking of things that don't have effects on health and that consequently wouldn't draw some health tax or subsidy.

Catherine Rempell over at the Washington Post makes the most sensible case around this stuff I've yet seen; she takes the economics seriously. If you want to reduce obesity for some reason, and people have different ways of becoming obese or of getting thinner, then taxing inputs like sugar is a bad way of changing outcomes. The general rule in economics is to target outcomes rather than inputs if it's the outcome you care about. Is the outcome that the health people really targeting just sugar consumption? Or is it being healthier and thinner? If it's the latter, then a soda tax is silly.

After going through all the reasons soda taxes are unlikely to work (elasticities are overestimated; people substitute to other sugars), she hits the nut of it:
Instead of arbitrarily singling out one category of bad foodstuff for taxation — and the categories of bad foodstuffs will always be somewhat arbitrary — a more effective route to reducing consumption of excessive sugar or calories might be a universal, graduated sugar or calorie tax.

But even that still doesn’t quite seem fair or, for that matter, efficient. After all, a calorie tax would also hit people who consume more calories because they are very active, like marathoners. Besides being regressive, a tax on calories or sugar would also effectively, if unintentionally, make it more expensive for trim people to exercise.

In other words, a lot of inputs go into determining whether a person is obese. Taxing some of those inputs distorts the relative prices of those inputs, but it doesn’t necessarily change the desired output: obesity rates.

Which raises the question: Why not just target the output, rather than some random subset of inputs? We could tax obesity if we wanted to. Or if we want to seem less punitive, we could award tax credits to obese people who lose weight. A tax directly pegged to reduced obesity would certainly be a much more efficient way to achieve the stated policy goal of reducing obesity.

Of course, “fat taxes,” even when framed as weight-loss tax credits, seem pretty loathsome. Why is . . . unclear.

Maybe it’s because they’re regressive (but so are soda taxes). Maybe it’s because it sounds like we’re shaming fat people (but arguably so does any policy aimed at reducing obesity). Maybe it just feels unfair to tax people based in any way on their genes, which, like diet and exercise, can also be an determinant of weight.

But if we assume it’s impossible for obese people to lose weight by any combination of inputs they do have control over, it’s hard to simultaneously argue that making one of those inputs more expensive could lead to some nationwide weight-loss miracle. Pop goes the pop-tax rationale.
Emphasis added.

Waiting on someone to claim that she's an industry shill, as that seems to be the favourite NZ argument against anybody who's not drunk the sugar-tax kool-aid.

There are two possible counterarguments against Rempell.

First, if all of the following are true, then a sugar tax can be second-best:
  1. Reducing sugar consumption is the most effective way of improving healthiness for a very large proportion of the people who are targeted;
  2. The target population is responsive to prices on inputs;
  3. The target population is immune to information campaigns in a particular way. So if you tax people based on some measure of BMI or body fat, and tell them "The best way to cut your annual fat tax bill is to reduce your sugar consumption, they have to reply "I really want to reduce my annual fat tax bill and be less fat, but I do not believe you about sugar and there's nothing you can do to convince me." 
There's another way they can be immune to the evidence: "I am happy the way I am, and I enjoy eating the things I eat even though I know they make me fat. Stop preaching at me. Here's my $100 contribution to your stupid stupid campaign to make me be other than I am." In that world, both fat taxes and sugar taxes are evil, not helpful.

If all three of those are true, then taxing the input can be a second best way of achieving the outcome. Taxing outputs works where people have different ways of producing the output and can come up with their best ways of doing so. If we assume that people are too dumb to do that, and that reducing sugar consumption really is a magic bullet, then tax the input.

The other way Rempell can be wrong is if sugar really is simply worse than other things.

If you believe the "Sugar is toxic" people, then obesity isn't really the outcome target. Obesity is one way that having eaten too much sugar manifests, but there are all the skinny people who drink sugar walking around like sleeper agents, oblivious to bad stuff until sugar sneaks up and kills them. Then sugar consumption is the outcome variable that should be targeted independently of obesity. I think it's ludicrous, but some people believe it, and have wrapped that kind of story into generalised anti-corporate conspiracy theories where anything is bad that can have a Big put in front of it.

No comments:

Post a Comment