The Cook County Tax on Sweetened Beverages: The Impact on Purchases of its Announcement, Implementation, and Repeal

• In Event: Beyond the First Sip:New Insights into Consumer Response to Excise Taxes

Abstract

Taxes on sweetened beverages have been widely adopted in response to increases in diet-related chronic disease. An episode of particular interest occurred in Cook County, Illinois, where a beverage tax was announced, implemented, and then repealed. Considering these difference in timing, the Cook county tax provides an ideal setting to evaluate strategic adaption hypotheses (e.g. effect from information, stockpiling behavior), and also, habit formation after the repeal. This paper is the first to estimate the effects of this tax using household-level data on purchases. We estimate difference-in-differences models that compare the change in beverage purchases over time in Cook County to that in comparison areas. The results indicate that consumer purchases did not detectably respond to the announcement of the tax. Implementation of the tax reduced purchases by 22.5% for all taxed beverages, 16.5% for high-calorie taxed beverages and a 33% for low-calorie taxed beverages. This implies a price elasticity of demand of -0.66 for all taxed beverages, -0.48 for high-calorie taxed beverages and -0.97 for low-calorie taxed beverages. The impact of the tax did not vary by household income, and there is no detectable impact of the tax on purchases of possible substitutes (bottled water, fruit juice, milk). After repeal of the tax, purchases of taxed beverages returned to their baseline quantities; there was no evidence of habit formation.

Author

• Felipe Lozano-Rojas, University of Georgia