Taxes do not prove changes in consumption patterns

Colegio de México presented interesting results on whether there is a change in soft drink consumption patterns resulting from price increases. The effectiveness of fiscal instruments to change patterns of consumption of goods that could affect health has not been convincingly demonstrated. , this was determined by the “Study of the Well-Being Effects of Tax Policy on High-Calorie Foods and Beverages” presented by El Colegio de México (Colmex), in which Dr. José Romero Tellaeche, Director of the Center for Economic Studies, and researchers participated Enrique Eliseo Minor Campa, Eneas Caldiño García and Carlos Romero Hernández.

The Colmex Center for Economic Studies conducted a study with data from the National Institute of Statistics and Geography (INEGI) to determine, on the one hand, whether there is a change in the consumption patterns of soft drinks that could be linked to the increase in prices, resulting from the entry into force new tax to sugary drinks in 2014, and others to measure the magnitude of a change in consumer welfare such as a decline in income.

The researchers shared the following conclusions:
• Between 2012 and 2014, the average consumption of soft drinks per capita in homes decreased by only 5.37 ml per day.
• There is no general pattern of decline in soft drink consumption, it depends on the region, household composition, city size and socioeconomic class.
• The net effect of a tax is determined by various factors, including consumption preferences, income levels, and substitution and complementarity with other goods.
• Special taxes, as an instrument for solving health problems, negatively affect the level of consumption of food and beverages that consumers can buy with their income (welfare).
• The lower-income population has not significantly changed its consumption since the tax took effect, but implies a loss of purchasing power for products from the basic basket.
• In 2014, consumers could buy 3% less food and drinks than in 2013 (as a result of the price change of these goods)
• IEPS for soft drinks was equivalent to 57% (1.65%) of the 3% reduction in consumers’ ability to purchase food and beverages
• For segments with lower purchasing power, the IEPS for soft drinks was equivalent to a 66% loss in their purchasing power for food and beverages in 2014.
• The impact of IEPS on consumer income devoted to food and beverages was manifested to a greater extent in lower income sectors.

Measuring the impact on consumer income is a good measure to consider the combined effect of all these factors and determine the cost of tax policy to consumers.

Evaluation consumption The caloric content of various foods and their effects on health is beyond the analysis of the economic effects of price variations caused by taxes. However, this study provides fundamental elements that legislators, regulators, and authorities must consider when making public policies.

Source: El Colegio de México (COLMEX) / Center for Economic Studies (CEE)

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