The Impact of Soda Taxes: Pass-Through, Tax Avoidance, and Nutritional Effects

The Impact of Soda Taxes: Pass-Through, Tax Avoidance, and Nutritional Effects

By Stephan Seiler, Anna Tuchman, Song Yao
March 12,2019Working Paper No. 3752

We analyze the impact of a tax on sweetened beverages, often referred to as a “soda tax,” using a unique data set of prices, quantities sold, and nutritional information across several thousand taxed and untaxed beverages for a large set of stores in Philadelphia and its surrounding area. We find that the tax is passed through at an average rate of 97%, leading to a 34% price increase. Demand in the taxed area decreases by 46% in response to the tax. There is no significant substitution to untaxed beverages (water and natural juices), but there is a large amount of cross-shopping to stores outside of Philadelphia. After taking into account cross-shopping, the total demand reduction is equal to only 22%. We do not detect a significant reduction in calorie and sugar intake.