Tuesday, March 9, 2010

Pigouvian Tax for Soda?

Does taxing soda (or other products high in calories) make economic sense? David Leonhartd from the NY Times suggests that it does. The reason is that people are increasing the amount of calories they consume, and this leads to being overweight and obese. The problems with being overweight or obese is that this is correlated with a number of health issues, such as diabetes. One way of reducing consumer caloric intake would be to increase the price of calories, such as on soda. The additional benefit is that the revenue generated by the government can be used to pay for the externalities caused by individuals increasing their caloric intake.


Jeff said...

Won't people just shift to buying high calorie fruit juices or sports drinks?

Stacey said...

If the tax is only on soda, yes. It would have to be on high calorie drinks as suggested in the article.