Fat Taxes: Big Money for Small Change

Hayley H. Chouinard, Washington State University
David E. Davis, South Dakota State University
Jeffrey T. LaFrance, University of California, Berkeley
Jeffrey M. Perloff, University of California, Berkeley

Abstract

In an attempt to improve the nation's health, many U.S. policy makers have or are considering imposing taxes on the fat in food. Dairy products constitute a large portion of at home fat consumption of particularly harmful types of fat, and nearly all U.S. households consume these products. We estimate a demand system for dairy products, which we use to simulate substitution effects among dairy products and the welfare impacts of fat taxes on various consumer groups. We find that even a 10 percent ad valorem tax on the percentage of fat would reduce fat consumption by less than a percentage point. Given that the demand for most dairy products is inelastic, a fat tax is an effective means to raise revenue. However, these fat taxes are unattractive because they are extremely regressive, and the elderly and poor suffer much greater welfare losses from the taxes than do younger and richer consumers.

Recommended Citation

Hayley H. Chouinard, David E. Davis, Jeffrey T. LaFrance, and Jeffrey M. Perloff (2007) "Fat Taxes: Big Money for Small Change," Forum for Health Economics & Policy: Vol. 10: Iss. 2 (Obesity), Article 2.
http://www.bepress.com/fhep/10/2/2

 
 
 
 

ISSN: 1558-9544 ©1999-2008 The Berkeley Electronic Press™ All rights reserved.

To submit, subscribe, recommend this journal to your library, or sign up for email alerts, please visit: http://www.bepress.com/fhep