Habit formation and demand for sugar-sweetened beverages
Zhen, C., Wohlgenant, M. K., Karns, S., & Kaufman, P. (2011). Habit formation and demand for sugar-sweetened beverages. American Journal of Agricultural Economics, 93(1), 175-193. DOI: 10.1093/ajae/aaq155
Using scanner data, we estimated demand for nine nonalcoholic beverages under habit formation. We found strong evidence for habit formation. Although demand for sugar-sweetened beverages by low-income households is less elastic to own-price changes compared with high-income households, there is evidence that high-income households consider beverages to be more substitutable than low-income households do. A half-cent per ounce tax on store-purchased sugar-sweetened beverages will result in a moderate reduction in consumption of sugar-sweetened beverages for both income strata. Because of habit formation, long-run national tax revenue from a sugar-sweetened beverage tax is about 15 to 20% lower than short-run revenue.