The Incidence of Soft-drink Taxes on Consumer Prices: Evidence from the French Soda Tax.

Summary Public health advocates have proposed taxing Sugar-Sweetened Beverages (SSB) to curb the rise of obesity and diabetes. The effectiveness of this policy depends crucially on the incidence of a tax on consumer prices. We here use Kantar WorldPanel Homescan data to evaluate the incidence of the French soda tax, which is a unit excise tax of 0.0716 Euro/Liter on sugar-sweetened beverages implemented in January 2012. We construct a local nested-CES exact price index for aggregate SSB consumption, which accounts for product heterogeneity, variations in product availability and consumer taste across markets and time, and consumer ability to substitute between product varieties. We then find that the soda tax has had a small yet significant impact on the price of soft-drinks (around +0.8\%), corresponding to a pass-through of 51\%. We do not find evidence of heterogeneity in incidence across income groups or consumption levels. Overall, our findings support the assumption that SSB taxes effectively affect prices. But they also imply that ex-ante evaluation studies tend to be over-optimistic about the pass-through rates of behavioural taxes.