Evidence from Household Scanner Data on the Association between Soda Taxes and Purchases

Lisa M. Powell, PhDUniversity of Illinois at Chicago

Nutrition and Obesity Policy Research and Evaluation Network MeetingAugust 10th, 2015

• The economic framework assumes that individuals maximize utility (i.e., happiness) subject to time and budget constraints.

• Prices and wages

• Constraints Budget Time

• Idea is that the policy instrument changes relative costs or benefits which, in turn, affect behavior choices related to diet and activity.

• Equity considerations: i.e., food taxes - who benefits versus who bears the costs. Health benefits – progressive Tax burden – regressive

Background: Economic Theory of Demand

Background: Trends in Soda Prices

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

50

60

70

80

90

100

110

120

130

140

150

160

Fruits & Vegetables Fresh Fruits & Vegetables Carbonated Drinks

Source: Bureau of Labor Statistics, 2015. Author’s calculations.

• State and local excise taxes on soda (i.e., soda taxes) discourage soda consumption by raising prices

• However, federal law routinely exempts soda from the state and local sales taxes for SNAP users

• Unintended, unhealthy incentives to consume soda are created for low-income SNAP users

Evidence from Household Scanner DataRoles of SNAP Sales Tax Exemption and Soda Taxes in the Demand for Soda

Methods – Conceptual Framework

• Annual information on the state, county, and local food and beverage sales tax rates effective as of July 1 of each year, 2010-2012

State sales taxes compiled through primary legal research using Lexis and Westlaw with telephone verification

County & muni sales taxes for all jurisdictions located in the 959 largest counties in the US (~90% US population covered) obtained through Internet research with telephone follow-up

– Over 11,000 jurisdictions in the 959 counties– Pop-weighted local tax=local tax rates * %age county population– County-aggregated tax rate =∑pop. Weighted local ratesci

“Disfavored” tax rates compiled for each county-aggregated measure:– Population-weighted soda tax rate – food tax rate = disfavored soda tax rate

(referred to DSTR on following slides)

Methods – Tax Data

• Combined tax data with detailed soda purchase records and household information obtained from AC Nielsen Homescan (National Consumer Panel)—3rd quarter of each year, 2010-2012—cross-sectional data

• Constructed two household-aggregated measures:Any soda purchasingVolume of soda purchased (oz)

• Rich sets of controls that include: income, household size and composition, race/ethnicity, marital status, housing status, employment status, education, and county-level median household income.

Methods – Household Scanner Data

• Household purchases linked with state+county-aggregated tax rates using county geocodes where the household was located

• Multivariate, two-part models– Logit models predicted purchasing decision– Conditional OLS predicted volume purchased conditional on

purchasing– Bootstrapped standard errors (500x)– Clustering on county

• Controlled for household and county level characteristics and year fixed effects

Methods – Empirical Models

Household Soda Purchases and Disfavored Soda Tax Rates, 2010-2012

All Households(N=158,937)

Soda Purchasing Households only

(N=127,667)Soda purchase status, prevalence per quarter

80.3% 100%

Soda purchase volume, ounces per quarter

917.6(1049.5)

1141.7(1055.8)

Disfavored soda tax rate

4.92(3.36)

4.87(3.36)

Impact of Disfavored Soda Tax Rate (DSTR) on Household Purchases, by household SNAP sales tax exemption status, Homescan National Consumer Panel 2010-2012

Tax Elasticity N

SNAP tax-exempt households

-0.0011 11,476

Sales tax-paying households

-0.0331*** 147,461

Low-income SNAP tax-exempt HH

-0.0097 10,167

Low-income sales tax-paying HH

-0.0746*** 13,647

All households -0.0309*** 158,937

Impact of SNAP Sales Tax Exemption on Soda Purchases by Disfavored Soda Tax Rate (DSTR), Homescan National Consumer Panel 2010-2012

Full sample

DSTR = 0.0%

DSTR > 0.0%

DSTR > 0.0% & ≤ 5.0%

DSTR > 5.0%

SNAP sales tax exemption

Semi-Elasticity 0.089*** 0.001 0.122*** 0.059 0.132***

SE (0.011) (0.038) (0.025) (0.065) (0.026)

N 158,937 37,312 121,625 18,905 102,720

• Soda taxes (disfavored soda sales taxes)Reduce soda purchase by 3.3% (p<0.01) among tax-paying

households when tax rate doubles (average DSTR: 4.9%) Has zero impact on soda purchases among sales tax-exempt

households (SNAP users)Low-income households are more sensitive to soda taxes unless

they are tax-exempt

• SNAP sales tax exemptionAssociated with 12.2% (p<0.01) higher soda purchases among

households located in jurisdictions with soda taxesHas zero impact on soda purchases among households located in

jurisdictions without soda taxes

Conclusions

• SNAP sales tax exemption is associated with higher soda purchases among SNAP users but only in jurisdictions with soda taxes (covering 65% of households in the sample)

• Eliminating the sales tax exemption for soda purchases with SNAP benefits has less to do with equity and more to do with restoring proper price incentives

• Need for better coordination of federal, state, and local regulations and policies for soda

Policy Implications

Acknowledgements

Co-authors:

Jamie Chriqui, PhD and Roy Wada, PhD

Research Supported by:

National Institutes of Health, NIDDK. R01DK089096 Mar. 2011 – Feb. 2016. Association between local and state sugar-sweetened beverage taxes, beverage purchasing patterns, and weight. Co-Investigator (Chriqui, PI).