Sugar and fat taxes: are they worth it?

Overweight may be the worst pandemic of our century: almost 2 billion adults worldwide, 600 million of them technically obese.

As the economy developed, westerns accessed to a wide range of products, from the television to the industrial food, cheap and fat-rich. Furthermore, traditional industrial labour-based sectors declined, while services rapidly grew. This transition influenced lifestyles, which became sedentary, and reduced time for parents, who could not look after children anymore. Youngsters generally dislike timetables and so few decided to practice a sport, preferring watching television.

This negative feedback has dramatically skyrocketed during the last ten years, following the information technology revolution which offers more attractive electronic devices. At the same time, unhealthy food is still sold and consumed.

Fortunately, many countries figured out that children overweight could become potentially the worst socio-economic problem ever. Therefore, unhealthy food has been banned from schools in the UK, as well as some countries such as Hungary or Mexico are taxing fizzy beverages.

Are you sure to drink them again?

Obese children will surely suffer from several diseases, which are quite costly to cure for the healthcare system and could damage the entire society. For instance, many of them will suffer for either heart problems or cancer, some before the age of 30.

But let me get straight to the point: why do not we tax sugar drinks and fat food as we tax cigarettes or alcohol? Following the idea that overweight and obese people are crowding hospitals due their weight-related health problems, pigouvian taxes would be one of the most effective (and let me add “equal”) measures our governments could take. What is a pigouvian tax? It is an old concept of microeconomics: some goods could have side effects for the whole society, thus the optimal quantity is below the actual production. How can regulators reduce it? Taxing these goods[1] in order to increase marginal costs and making the supply-side produce less. As far as I am concerned, increasing VAT (Value Added Tax) for sugar drinks and junk food would be the fastest application of pigouvian principles: this new source of income should be spent in sport facilities and health education.

However, taxation cannot resolve overweight problems. First of all, economists could not be helpful as other specialists in many fields: different approaches are needed (food education, wellness culture…). Furthermore, the regulators should verify pigouvian taxes validity through econometrical tools: without econometrics, economics is all but concrete.

An easy graphical example of negative externality: it has been solved through pigouvian taxation.

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[1] Fizzy drinks and junk food in general seem to be elastic goods, thus a small price variation causes a relatively wide demand variation.