Is the fat tax really effective?

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Recently, some European countries, including Spain, have considered introducing new taxes to reduce their budget deficits. Among the set of measures, they have proposed a fat tax, which has the aims of not only increasing revenues, but also reducing junk food consumption, and thereby obesity rates and the concomitant health costs.

Although this is what we expect from the theory, empirical evidence is revelatory of a different picture. Firstly, the tax is not fully reflected in the prices of the products that have been targeted. In fact, in the countries where the tax has been imposed, supermarkets and other food stores have played with prices and margins of other products in an attempt to avoid raising the prices of the products that are subject to taxation. For example, some firms have increased the prices of substitutes (e.g. sodas with low calories) while spreading the higher cost of taxed food onto other foods or own-branded products that typically have higher profit margins. Another interesting reaction from the supply side has been that producers have been substituting those taxed products with un-taxed products that are just as unhealthy. Additionally, they have also reduced the amount of some inputs below the legal threshold to avoid the fat tax. Ostensibly, these tricks have clearly diminished the effectiveness of the tax.

On the demand side, we have also seen interesting reactions. Firstly, it is important to notice that people who consume more junk food are less responsive to a price increase than moderate consumers. Hence, the fat tax is not actually benefiting its most important target audience. Furthermore, there is an important substitution effect as all products have, on the whole, become more expensive, consumers have switched to cheaper goods of lower quality.

According to different studies, the impact of the fat tax has not achieved its desired outcomes, and there has not been a significant reduction in obesity rates. Therefore, although some studies claim that what is needed is a higher tax of at least 20% to lead to a sizeable decrease in obesity rates, it is unlikely that this policy alone would be effective enough. Moreover, it is a highly regressive tax because poor people are spending more on less healthy foods. In view of this, we should instead study the introduction of other interventions such as heathy food subsidies, campaigns promoting a healthy diet, health education at school to try to curb obesity through moral suasion from an early age and , albeit a very unpopular one, taxing people according to their body mass index.

References:

Leicester and F. Windmeijer. The ‘fat tax’: economic incentives to reduce obesity. Institute for Fiscal Studies

ECORYS (2014). Food taxes and their impact on competitiveness in the agri-food sector. ECSIP

Frank, S.M. Grandi and M.J. Eisenberg (2013). Taxing junk food to counter obesity. American Journal of Public Heath

Cornelsen, R. Green, A. Dangour and R. Smith (2014). Why fat taxes won’t make us thin. Journal of Public Health.

Vaccine-preventable Childhood Disease and Adult Human Capital: Evidence from the 1967 Measles Eradication Campaign in the United States

Editor’s note: This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2016. The project is a required component of every master program.


Authors:
Philipp Barteska, Sonja Dobkowitz, Maarit Olkkola, Michael Rieser, Pengfei Zhao

Master’s Program:

Economics

Abstract:

Measles is currently one of the leading causes of death for young children worldwide. We analyze the impact of measles prevention on later-life human capital outcomes by taking advantage of a measles eradication campaign implemented in 1967 in the United States. We provide evidence with a difference-in-differences design from the 2000 US census micro-sample for the following statistically significant results: the campaign increased completed years of schooling by two weeks, the probability of completing high school by 0.32 per cent and decreased the probability of being unemployed by 4.26 per cent. Due to the exogenous timing of the eradication campaign, we argue that these results can be interpreted causally. To the best of our knowledge our paper is the first one to document adult human capital impacts of early-life measles exposure using a natural experiment.

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Figure 1: Yearly Cases of Measles in the United States

Empirical strategy:

The 1967 measles eradication campaign led to an unprecedented drop in reported measles exposure in the US, as depicted in figure 1.

Our empirical strategy uses the fact that there is variation in measles exposure between states prior to the eradication campaign: the decrease in incidence is highest in those states with the highest incidence rates, as depicted in the first stage relationship in figure 2. This allows for a difference-in-differences design, exploring whether the states that had higher prior exposure to the disease gained more in human capital outcomes than the states with less exposure, controlling for pre-existing state-level linear time trends and state fixed-effects among other controls.

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Figure 2: Decline 1966-1970

We also perform placebo interventions to test the robustness of our results. As depicted in figure 3, the only positive and statistically significant impacts are found for 1967, the actual intervention year. This lends more support to the causal interpretation of our results.

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Figure 3: Placebo Interventions Around Cutoff

Conclusion:

In this paper we show suggestive evidence that exposure to a previously common childhood disease can have negative impacts on educational attainment in adulthood, although the effect sizes are not large. This finding strengthens the literature on the early-life origins of human capital.

Our results are for the most part relevant for developing countries, many of which have not yet achieved the vaccination levels required for herd immunity.

Full project available here

Data sources:

IPUMS-USA, University of Minnesota, www.ipums.org.

Project Tycho, University of Pittsburgh, www.tycho.pitt.edu

Effectiveness of primary care ValCRÒNIC teleHealth program

Editor’s note: This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2014. The project is a required component of every master program.


Effectiveness of primary care ValCRÒNIC teleHealth program: outcome findings on mortality and healthcare service consumption in patients with high-risk chronic conditions. A cohort study with matched controls in Valencia community, Spain.

Author:

Sherman Kong

Master Program:

Health Economics and Policy

Paper Abstract:

We analyze the mortality and hospitalization level of 512 patients enrolled in the ValCRÒNIC teleHealth program in Valencia public health region with a matched control of 1023 patients with same risk profiles. We obtain medical records of patient sample for 12 months before start of trial and follow-up on consumption level from hospital and primary care facilities for 12 months during program. We observed utilization level before and after trial and found an increase in primary care nurse and home care visitations. We used logistic and zero-inflated Poisson models to estimate effect of program enrollment to intense acute hospital use, deaths and avoidable hospitalization rate. We found insignificant benefits to reducing mortality and intense acute hospital use.

Author’s note: This paper is a work in progress, pending revision of results.

Read the full paper or view slides below: