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The Impact of a ‘Soda Tax’ on Prices: Evidence from French Micro-Data

March 3, 2016
By Nicoletta Berardia, Patrick Sevestreb, Marine Tépautc and Alexandre Vigneron

This study examines how a 2012 tax on soda and other sugar-sweetened beverages (SSBs) was passed on by distributors to consumers.

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This study, written by Banque de France Microeconomic and Structural Analysis Directorate senior researcher and economist Nicoletta Berardia, examines how a 2012 tax on soda and other sugar-sweetened beverages (SSBs) was passed on by distributors to consumers, and how the tax affected the prices paid by consumers purchasing beverages other than soda or sweetened drinks.

Berardia and the team of researchers write that the price of the excise tax was fully passed along to consumers buying soda beverages, but the costs of selling other kinds of taxed beverages were passed along to consumers at varying and unequal rates.

“We find that, after 6 months, the tax was fully shifted to soda prices, while there was a significant under-shifting of the tax to the prices of flavoured water and a slight under-shifting to the prices of fruit-flavoured drink,” Berardia wrote. “Note that the preponderance of soda sales among the non-alcoholic beverages liable  the tax suggests a quasi-full shifting of the excise to beverage prices at the macroeconomic level, supporting the full shifting assumption often made in studies about the impact of SSB taxes on soft drink consumption. Moreover, our results point to a significant heterogeneity of the soda tax pass-through not only across product categories, but also across retail groups, as well as across beverage brands. In particular, the average quasi-full shifting of the tax results from the combination of an undershifting of the tax for large producers’ brands and an over-shifting in the case of private labels. At the same time, we find that the two main retail groups in France often passed through the soda tax less than other retailers. These results are shown to be consistent with a simple producer-retailer bargaining framework.”

Berardia writes that the soda tax increases the cost of doing business for smaller businesses more than larger businesses.

“Concerning the heterogeneity of pass-through across retail groups, in most cases the tax passthrough is lower for the two largest retail groups than it is for the others,” Berardia wrote. “This is probably due to the fierce price competition between these two large retail groups, each of which regularly claims to be the cheapest. Another complementary explanation, consistent with our model, is that the largest retailers were able to oblige producers to under-shift the tax, while smaller retailers were in a weaker bargaining position. Overall, our estimation results are consistent with the prediction of a fairly simple model in which the consumer price depends on production costs as well as on the characteristics of demand (elasticity) and of the market (competition). The margin, defined as the difference between the retail price and the cost of production, is shared between producers and retailers on the basis of their respective bargaining power.”
Article Tags
Taxes: Excise Tax