Revisiting the Effects of Sugar Taxes on Sugary Drink Consumption: Evidence from the Random-Coefficient Demand Mode

Abstract

Berkeley's sugar tax policy is currently under intense scrutiny and debate while similar tax policies are rapidly expanding to other US states. Contrary to theoretical predictions and policy expectations, previous literature documents short-term evidence of increased consumption of sugary drinks in response to a sugar tax policy. We investigate the underlying mechanism behind this behavioral anomaly using the BLP-RC Logit demand model in characteristic space. We find that the sugary drink consumption increase is mainly driven by a change in the average valuation of the sugar content going from negative to positive following the enactment of the sugar tax policy. Show more