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Effects Of The Soft Drink Tax Economics Essay

Nowadays, obesity has become a serious epidemic disease worldwide. The increasing prevalence of obesity is a big problem which threats the public health terribly. Australia is faced with severe obese problem. “The Medical Journal of Australia found that obesity in Australia more that doubled in the two decades preceding 2003, and the unprecedented rise in obesity has been compared to the same health crisis in America “(Dunn, A., 2003). The rising prevalence can cause significant bad effects on the society. Obesity is associated with health problems. “An obese person has a higher risk of mortality from cardiovascular disease, type 2 diabetes, osteoarthritis, and some specific forms of cancer. As a person’s weight increases, their risk of developing more than one of these medical conditions also increases“(Medibank Health Solutions, 2010). Apart from the physical effects, obesity also has bad effects on people’s psychological effects. Besides, it can give rise to great economic and social costs. Thus obesity is a urgent concern in Australia. Taking soft drinks is an important factor which causes obesity. This paper discusses the imposure on carbonated soft drinks to lower soft drink consumption. Since carbonated soft drink consumption is reduced, it has a good influence on obesity prevention.

Evidence Statement: There is strong evidence that a tax on carbonated soft drinks reduces carbonated soft drink consumption.

Statement Analysis

The consumption of carbonated soft drinks is considered to be a contributing factor to weight gain and obesity. “One study followed 548 schoolchildren over 19 months and found that changes in soft drink were associated with changes in body mass index (BMI). Each soft drink that a child added to his or her daily consumption was accompanied by an increase in BMI of 0.24 kg/m2” (Ludwig, Peterson and Gortmaker, 2001). Thus, the consumption of carbonated soft drinks needs to be reduced. Many experts advocate tax on soft drinks. The aim of imposing tax on carbonated soft drinks is to curb unhealthy diet and prevent obesity. Since a tax is imposed on the carbonated soft drinks, the prices of the carbonated soft drinks increase. A number of studies have found that soda consumption is price-sensitive (Andreyeva, Long and Brownell, 2010). As the prices of soft drinks increase, the consumer buys less carbonated soft drinks or the poor even stops to buy.

Evidences

Price changes can influence the purchases and consumption of carbonated soft drinks. Based on the best estimates to date of the responsiveness of demand for soft drinks to changes in price (Andreyeva, Long and Brownell, 2010), a tax of 1 cent per ounce of beverage would increase the cost of a 20-oz soft drink by 15 to 20%. The influence on consumption can be estimated by research on price elasticity. The price elasticity for all soft drinks is in the range of -0.8 to -1.0 (Andreyeva, Long and Brownell, 2010). (Elasticity of -0.8 suggests that for every 10% increase in price, there would be a decrease in consumption of 8%). With the use of a conservative estimate that consumers would substitute calories in other forms for 25% of the reduced calorie consumption, an excise tax of 1 cent per ounce would lead to a minimum reduction of 10% in calorie consumption from sweetened beverages, or 20 kcal per person per day, a reduction that is sufficient for weight loss and reduction in risk (Brownell et al., 2009). The effects could be higher user of soft drinks (Gustavsen and Rickertsen, 2005). Price intervention is an effective way to lower carbonated soft drinks consumption.

Many researchers have linked prices to soft drink consumption. Research has shown that food consumption is sensitive to price changes. Based on November 2008 price increase and volume sales information on Coca Cola and Pepsi sales in the U.S. demand for soda is “elastic”(-1.15) meaning that a 10% tax would reduce consumption by 11.5%(Beverage Digest, 2008). If the prices of carbonated soft drinks are raised, the consumers will reduce their demand on soft drinks and turn to other choices. It can promote the purchases of healthy drinks (Rudd report, 2009). If a tax is imposed on carbonated soft drinks, the prices of the drinks will increase inevitably. Consequently, the consumption is discouraged.

Besides the above evidence, a study, published in the American Journal of Public Health, also prove that tax can lower carbonated soft drinks consumption. The study was carried out at Harvard’s Brigham and Women’s Hospital in Boston. The researchers raised the price of sugary soft drinks in the university canteen by 35 percent for a four week period. Regular soft drinks consumption declined by 26 percent during the price increase phase (Food Product Design, 2010). While sales of regular soft drinks fell, sales of diet soft drinks and coffee increased by 20 percent (Thomas, 2010). This study shows that the price increase of sugary soft drinks reduces the consumption of sugary drinks and may encourage many people to choose healthier drinks (Thomas). The researchers also held an educational campaign lasting four weeks to advocate the students to decrease soft drinks consumption. However, this approach did not work. During this period, the soft drinks consumption changes little (Thomas). The education had little influence on sales.

The study on children also supports the theory. Small sales-tax increases on soft drinks may reduce consumption and curb obesity for some at-risk children (Pediatric Super Site, 2010). Each 1 percent tax difference between soft drinks and other foods was associated with a 0.222 decrease in BMI among those at risk for becoming overweight(P﹤0.5) . Children of low-income households (﹤$25,000) and those who watched more than nine hours of TV per week consumed fewer sodas overall (0.029) and in school (0.142) per week for each 1% of tax (P﹤0.5) (Pediatric Super Site). A tax on carbonated soft drinks can reduce consumption for some special groups and curb weight gain for some at-risk children.

Moreover, the taxation of tobacco and alcohol demonstrates a good example for the taxation of carbonated soft drinks. The taxation of tobacco and alcohol demonstrates that it is possible to influence consumer behavior and health outcomes by the tax system. It is suggested that cigarette taxes is an effective way to prevent the youth and adult from smoking and improve public health (Fletcher, Frisvold and Tefft, 2009). Economic studies conclude that every 10% increase in the real price of cigarettes reduces consumption by 3 to 5% overall, 3.5% among young adult smokers and 6 to 7% among children (Rudd report). As a matter of fact, adults, especially young adults are sensitive to the price of alcohol and that increases in alcohol taxes would reduce mortality, injuries and crime (Fletcher, Frisvold and Tefft,). The properties of carbonated soft drinks are like the properties of tobacco and alcohol. Like tobacco and alcohol, carbonated soft drinks are not necessities for life and it can cause social problems. Therefore, carbonated soft drinks consumption can also be reduced by a tax.

Summary

All the evidences listed above are conceivable to support the theory that a tax on carbonated soft drinks reduces carbonated soft drink consumption. These evidences are persuasive but they are not perfect. It has disadvantages and flaws. The first evidence is the most convincing evidence. However there are not enough practical cases to prove the theory. The second study is carried out in a small area during a short time. A general conclusion can not be made from this evidence. The third one has the same advantage as the second evidence. The fourth one is least convincing.

Although the evidences for imposing tax on carbonated soft drinks have flaws, it is convincing enough to make a conclusion that a tax should be added to carbonate soft drinks to reduce carbonated soft drinks consumption and prevent obesity.

Evidence translation: A sales tax of 5% should be added to carbonate soft drinks in Australia.

Statement analysis

Carbonated soft drinks do not contain any nutrition. It can cause obesity and other diseases. Obesity is a serious problem in Australia. It not only threats public health but also generates huge economic costs. The total costs of obesity to the Australian economy are 37.7 billion dollars. The direct costs are 1.3billion dollars. The indirect costs are 6.4 billions dollars. And the disease costs are 30 billion dollars, which is a big proportion in the total costs (Medibank Health Solutions). Thus obesity intervention should be made urgently. The evidences show that imposing tax on carbonated soft drink can reduce consumption. If the carbonated soft drinks consumption is reduced, obesity can be prevented to some degree. The tax measure encourages the public to have healthier diet and life styles.

Besides, the tax can generate tremendous revenues for government. For example, in USA, Arkansas taxes 0.21 dollar per gallon of liquid soft drink and 2 dollars per gallon of soft drink syrups, generating about 40.4 million dollars in annual income. California has a 7.25% sales tax on soft drinks that produces an estimated 218 million dollars in annual income for the state (Brownson and Shiriki Kumanyika, P161). These revenues can be used to cure and prevent obesity and pay for the relative medical expenses. Imposing tax can prevent obesity and reduce the expenses on obesity meanwhile it will generate more money for obesity treatment and prevention. The tax can also encourage the soft drink company to develop healthier drink. For example the company can use xylitol which is sugarless to replace sugar.

Imposing tax on carbonated soft drinks is necessary. However, the imposture on tax is a complicated and controversial problem. There are many arguments on this issue. Many people are opposed to this proposal. There are side effects on this issue. Besides, how much tax should be added and which kind of tax should be imposed can not be decided easily.

People doubt that whether soft drink tax is an effective method to reduce consumption. The study on children mentioned in the third evidence shows that small soft drink tax has little influence on consumption. For each 1% increase in soft-drink taxation, the reduction in total soft drinks per week was 0.004 and the reduction in soft drinks purchased at schools per week was 0.010. overall BMI was decreased by 0.033(P﹤0.5) (Pediatric Super Site). Although soft drink taxes have existed since at least 1920 (New York Times, 1920) and until recently these taxes have been used primarily to generate revenue (Caraher and Cowburn, 2005).

The price increase of carbonated soft drink may motivate consumers to buy the substitutes, such as sports drink and other drinks with high caloric. What’s worse, this approach may encourage consumers to buy larger containers because the cost per ounce is lower, so the tax per ounce would be lower as well (Rudd Report). Then, the tax measure may have an adverse effect. Meanwhile, this issue also involves the problems of social equity and individual autonomy (Basham and Luik, 2010).

Conclusion

Based the above evidences and analysis, a tax should be levied on carbonated soft drinks to prevent obesity in Australia. However, in order to make the obesity intervention effective, small tax is inefficient. A sale tax of 5% does not have enough effect on the fall of the carbonated soft drinks consumption. The price increase of carbonated soft drink may stimulate the consumers to buy other drinks with high caloric or larger containers. To solve this problem, excise tax has more advantages that sale tax.

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