Taxing Food and Beverages: Theory, Evidence, and Policy

American Journal of Agricultural Economics, 2013

62 Pages Posted: 2 Dec 2012 Last revised: 15 Dec 2012

See all articles by Yuqing Zheng

Yuqing Zheng

University of Kentucky - College of Agriculture - Department of Agricultural Economics

Edward W. McLaughlin

Cornell University - School of Applied Economics and Management

Harry M. Kaiser

Cornell University - School of Applied Economics and Management

Date Written: November 30, 2012

Abstract

We developed a theoretical framework that allows examination of the effect of a change in sales or excise tax on food and beverage demand after taking into consideration that consumers may have imperfect tax knowledge, are sometimes inattentive to sales tax, may not be informed of a sales tax change, and pay no sales tax on eligible food or beverages if using food stamps. We conducted a store survey in New York State and found that, on average, fully one-third of all consumers do not know the correct sales tax status of food and beverages, and past purchase of the same item does not improve consumers’ tax knowledge. Using the parameters mainly obtained from the store survey, we conducted simulations to provide insight into how much the sales tax elasticity of demand should be adjusted downward from the price elasticity of demand and quantified the advantage of using an excise tax as an anti-obesity policy.

Keywords: demand, excise tax, food and beverages, imperfect tax knowledge, misperception, sales tax

JEL Classification: H25, H71, D12

Suggested Citation

Zheng, Yuqing and McLaughlin, Edward W. and Kaiser, Harry M., Taxing Food and Beverages: Theory, Evidence, and Policy (November 30, 2012). American Journal of Agricultural Economics, 2013, Available at SSRN: https://ssrn.com/abstract=2183397

Yuqing Zheng (Contact Author)

University of Kentucky - College of Agriculture - Department of Agricultural Economics ( email )

Lexington, KY 40546
United States

Edward W. McLaughlin

Cornell University - School of Applied Economics and Management ( email )

248 Warren Hall
Ithaca, NY 14853
United States
607-255-3169 (Phone)
607-255-4776 (Fax)

Harry M. Kaiser

Cornell University - School of Applied Economics and Management ( email )

248 Warren Hall
Ithaca, NY 14853
United States
607-255-1598 (Phone)
607-254-4335 (Fax)

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