Taxing the Sweet Tooth: The Differential Impact of Large Sales Tax Changes

• In Event: Sales Taxes as Social Policy: Incidence, consumer responses and benefits distribution of wax waivers and inclusions

Abstract

This study investigates how changes in sales tax rates affect both retail prices and consumer purchases of sugar-sweetened beverages (SSB) and candy. Five jurisdictions (Arkansas, Colorado, Washington D.C., Illinois, and Vermont) terminated reduced sales tax rates on these products between 2009 and 2018, creating natural experiments for analysis. Using retail scanner data from 2008 to 2019, the research applies Synthetic Difference-in-Differences and other estimation methods to identify causal effects. Results show that products with higher household budget shares (SSB) experienced approximately 10% reductions in sales volumes, while products with lower budget shares (candy) showed no statistically significant changes. Notably, jurisdictions with larger tax increases (5+ percentage points) saw significant decreases in SSB sales, while regions with smaller changes (e.g., Colorado, 2.9%) showed minimal effects. Tax effects varied heterogeneously across package sizes, retail channels, and time, with impacts gradually strengthening over several months following implementation. This is the first study to comprehensively analyze the effects of sales tax exemption terminations on beverage and snack markets across multiple jurisdictions with staggered adoption, demonstrating that the magnitude of tax effects depends critically on product characteristics and tax rate changes, providing important implications for the design of health-related tax policies.

Author

• Beomyun Kim, Iowa State University
  Presenting Author