Food Taxes vs Food Subsidies

In principle, taxing unhealthy food and subsidizing healthy food ought to have similar impacts on consumer behavior. But as we know, actual human decision-making often varies from what that kind of theoretically-correct indifference. Tyler Cowen points to some evidence that taxes would have more impact:

The results, just published in Psychological Science, a journal of the Association for Psychological Science, show that taxes were more effective in reducing calories purchased over subsides. Specifically, taxing unhealthy foods reduced overall calories purchased, while cutting the proportion of fat and carbohydrates and upping the proportion of protein in a typical week’s groceries.

By contrast, subsidizing the prices of healthy food actually increased overall calories purchased without changing the nutritional value at all. It appears that mothers took the money they saved on subsidized fruits and vegetables and treated the family to less healthy alternatives, such as chips and soda pop. Taxes had basically the opposite effect, shifting spending from less healthy to healthier choices.

When you think about it in a broader context, taxes look even more favorable. If you tax unhealthy food, you’ll wind up with a bunch of revenue that you can spend on subsidized preschool or fixing potholes or lower general sales taxes. By contrast, if you subsidize healthy food, you’ll wind up needing to make your preschool subsidies less generous or take longer to fix potholes or raise general sales taxes. If there’s some very compelling reason to think that subsidies will be more efficacious at promoting public health than taxes, then of course you have to consider it seriously. But insofar as the evidence implies the reverse, there’s a very strong case for taxing unhealthy foods. Of course as a first step in an ideal world we’d reduce our spending on agricultural programs that subsidize production/consumption of unhealthy foods, a crazy policy initiative supported by nobody except all the relevant members of congress.

As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.