JPAM Featured Article: "The Pass-Through of Taxes on Sugar-Sweetened Beverages to Retail Prices: The Case of Berkeley, California"
October 4, 2016 04:00 PM
As part of our ongoing effort to promote JPAM authors to the APPAM membership and the public policy world at large, we are asking JPAM authors to answer a few questions to promote their research article on the APPAM website.
By: John Cawley and David Frisvold
What was the genesis/history of the idea for your research?
The “origin story” of our paper goes back to November 2014. I was on sabbatical in Australia and read online that Berkeley CA had passed a ballot initiative to tax sugar-sweetened beverages (SSBs). The tax was to take effect less than two months later (Jan 1) and so it seemed like it just might be possible to evaluate the effects of the tax, if there was time to collect baseline data before the tax. David Frisvold, whom I already knew, had worked extensively on the effects of SSB taxes, so I emailed him to see if he’d be interested in trying to evaluate the tax. We kicked around various ideas, but the one that was most feasible was to send research assistants to the stores and record the prices before and after the tax in Berkeley, as well as in a control community. Dave was able to secure funding from the University of Iowa (there wouldn’t have been time to secure even a rapid-response grant) and found Iowa students from the Bay Area to serve as RAs, and we were off and running!
What is the main conclusion that becomes evident from your research? (Or, what is our main takeaway?)
The main takeaway is that less than half of the tax was passed through to consumers in the form of higher prices. This is surprising because much of the previous research literature on pass-through (for products other than SSBs) found 100% pass-through, and the advocates of the tax had expected/predicted the tax to be fully passed through. Possible reasons why the pass-through is lower include: Berkeley is small and it’s relatively easy to evade the tax by cross-border shopping (we find evidence consistent with this – the stores closer to rival stores outside of Berkeley pass through less of the tax, presumably because they’re worried about losing business), and consumers in Berkeley may be unusually price-sensitive. In continuing the research, we are now in the process of beginning to study the upcoming SSB tax in Philadelphia, and ones in other cities that may pass them in ballot initiatives in November.
What are some of the more interesting or surprising findings/conclusions, you discovered during this process?
The fact that pass-through was so low (less than half) was surprising, but it’s definitely the case – we have looked at the data numerous ways and it’s very robust. Moreover, data collected by another research team has confirmed that pass-through was less than 100%.
The suggestive evidence of cross-border shopping; if true, it implies that city-level taxes face an additional challenge relative to taxes enacted by larger geographic entities (states, nations).
Issues of policy implementation – the tax was originally scheduled to take effect Jan 1, so we collected price data in late January, but it later turned out that the city wasn’t ready to collect the tax so waived it until March 1, so we had to junk that wave of data and collect another round!
How politicized this issue turned out to be. Our goal is evidence-based policymaking; i.e. to ensure that we have accurate information on what policies actually do and how well they work, and to share that information so that we can revise and improve policies. However, some advocates for the tax were not receptive to feedback on the actual effects of the tax and misinterpreted our study as an attack on the entire notion of an SSB tax, despite the fact that we point out in our paper that there is an economic rationale for one. To us, this is a reminder that social scientists have a vital role to play in providing objective information in contentious policy areas.
John Cawley (@cawley_john), is a Professor in the Department of Policy Analysis and Management, and the Department of Economics, at Cornell University, where he co-directs the Institute on Health Economics, Health Behaviors and Disparities. Additionally, John is a Visiting Professor at the University of Sydney, Australia, an Honorary Professor at the National University of Ireland, Galway, a Research Associate of the National Bureau of Economic Research (NBER) and a Research Fellow of the Institute for the Study of Labor (IZA). John’s primary field of research is the economics of risky health behaviors, with a focus on the economics of obesity. John serves as an Editor of the Journal of Health Economics, an Associate Editor of Health Economics, and serves on the Editorial Board of the American Journal of Health Economics.
David Frisvold, is an Associate Professor in the Department of Economics and a Scholar-in-Residence of the Public Policy Center at the University of Iowa. He is also a Research Associate at the National Bureau of Economics Research (NBER) and a Faculty Affiliate of the Institute for Research on Poverty. His research agenda explores the role of government policies in enhancing education and health outcomes, with an emphasis on policies targeted towards low-income children. Further, his research examines the influence of public policies on obesity, with a particular emphasis on understanding the influence of taxes on consumer behavior and obesity.
Check out this and other Journal of Policy Analysis and Management articles online.