Tuesday, February 15, 2022

Tax Soda, Sell More Beer

 A new PLos One study by Lisa Powell and Julien Lader, compared beverage consumption in Seattle and Portland after Seattle, but not Portland, instituted a "sugar tax" on soda. They found a 7% increase in beer consumption in Seattle relative to Portland. They estimate the cross-price elasticity to be 0.35. The tax was meant to cut the medical costs of obesity due to excess sugar intake. The social costs to additional beer drinking may be even higher. Not only is beer calorie rich, people tend to function less well while inebriated, leading to various injuries. Below are the raw trends in beer sales.



From a managerial perspective, beer distributors who anticipated the substitution would have increased production enough to maximize profits from this shift in demand.

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