Predicting the effects of sugar-sweetened beverage taxes on food and beverage demand in a large demand system
Zhen, C., Finkelstein, E. A., Nonnemaker, J., Karns, S., & Todd, J. E. (2014). Predicting the effects of sugar-sweetened beverage taxes on food and beverage demand in a large demand system. American Journal of Agricultural Economics, 96(1), 1-25. DOI: 10.1093/ajae/aat049
A censored Exact Affine Stone Index incomplete demand system is estimated for 23 packaged foods and beverages and a numéraire good. Instrumental variables are used to control for endogenous prices. A half-cent per ounce increase in sugar-sweetened beverage prices is predicted to reduce total calories from the 23 foods and beverages but increase sodium and fat intakes as a result of product substitution. The predicted decline in calories is larger for low-income households than for high-income households, although welfare loss is also higher for low-income households. Neglecting price endogeneity or estimating a conditional demand model significantly overestimates the calorie reduction.