New report shows Berkeley Soda Tax is poorly transmitted to consumer prices

In January 2015, the city of Berkeley (United States, California) introduced a tax on sugar-sweetened beverages at a rate of one-cent-per-ounce with the clear objective of lowering consumption of thetargeted products. In a report issued in August 2015, economists John Cawley and David Frisvold show that “there was relatively little pass through of the Berkeley SSB tax to consumers”.

A key reason is that retailers cover the cost of the tax in order not to drive consumers towards stores located outside of Berkeley. As a consequence, the tax is only levied on businesses and shops and are not uniformly transmitted to the consumer price. The authors estimate that “across brands and sizes, we estimate that retail prices rose by less than half of the amount of the tax”, meaning that at least 50% of the tax becomes exclusively a new burden for small businesses and that the tax “will result in less of a reduction in consumption, and thus less health improvement, than anticipated”.

Those conclusions are echoed by the ones from the study on the impact of food taxes on competitiveness in the agri-food sector commissioned by DG GROW (European Commission) in 2014, which concluded that “there is no clear and uniform transmission of taxes to consumer prices due to strategic pricing behaviour by manufacturers and retailers” (p. 24)  and that “an ad valorem tax and situation of high ex ante margins will likely result in undershifting with firms bearing part of the tax through reduction of margins” (p. 33). As a conclusion, a tax on sugar-sweetened beverages would not only be inefficient in fulfilling its objectives of lowering consumption but will effectively hurt businesses and competitiveness.

Education not tax, EU Impact on Competitiveness Report, Europe, United States