Is Mexico’s soda tax really working?

It is commonly held up as a model of dietary paternalism, but the most recent trends suggest a reversal of sorts:

Coca-Cola Femsa SAB, the country’s largest Coke bottler, said last Wednesday that its Mexican soda volumes rose 5.5% in the first quarter from a year earlier. Arca Continental SAB, the No. 2 Coke bottler, reported soda volumes surged 11%.

The turnaround began last year, when Mexican soda-industry volume rose 0.5% after falling 1.9% in 2014, said data service Canadean.

Consumers also aren’t flocking to untaxed zero-calorie sodas. The market shares of full-calorie Coca-Cola and Pepsi-Cola inched higher last year to 48% and 11%, respectively, according to Euromonitor, another data service.

Antisoda groups aren’t ready to declare the tax a failure and say sales got a boost from unusually warm weather.

And note this:

Even the initial downturn [in soda consumption] only lowered the average Mexican’s daily caloric intake by 6 to 7 calories, or 0.2%, according to the study.

I do not think the correct conclusion is “Mexico’s soda tax is failing,” rather “it can take a very long time to discover whether or not policies are working well.”  For instance the tax may be step one in a longer-run beneficial shift in norms, or going the other way the tax may end up as irrelevant or possibly even counterproductive, if individuals end up substituting into something even less healthy.  This point about the long run is relevant for assessing the ACA, minimum wage hikes, the euro, various tax cuts, financial regulation, and many many other policies.  Relative price effects, secondary consequences, and “chances” of gaming the system are all much higher in the long run than the short.

Comments

'This point about the long run is relevant for assessing ....'

Yes, don't worry, some day every single one of those things will fit your self-recommending mood affiliation, regardless of how Straussian the reading of the text.

Does the PRI pushing through a soda tax once they got back in power have anything to do with the first PAN president to break the PRI monopoly, Vicente Fox back in 2000, being a Coca-Cola executive?

All this talk about soda tax working or not working is taking the premise that the point of a soda tax is to reduce the consumption of soda; but if we see the soda tax as a kind of pigouvian tax because of the negative externalities (via socialized healthcare) created by the consumption of "soda", I think that is irrelevant if the consumption is reduced or if there are instead an increase of tax revenues - in both cases the negative externality is being reduced or compensated.

"Is Mexico’s soda tax really working?"

Cowen's timing is uncanny. I was *just* wondering about this in March, as I'm sure most of us were.

Still, I'm hard pressed to see how soda taxes in Mexico are more important than the research of health / anti-aging in mice that took a vitamin B3 derivative, called NR, that was published in an obscure journal called "Science" a few days ago.

https://www.sciencedaily.com/releases/2016/04/160428152124.htm

Mice aren't your future masters. Mice will not be determining all the elections in the future.

What Mexicans think of a soda tax may well be more important.

Indeed, this underscores how little society cares in invention. It's assumed in economics (Solow model) that innovation, which drives long term growth says the Solow model, is exogenous or simply drops out of the sky, according to the whims of Good Samaritan inventors. But woe to anybody who advocates diluting 'hard' property rights like Fee Simple Absolute--that's sacrosanct. Buy low, sell high, fence your own property and perfect competition to maximize output is enshrined in western society as the road to prosperity. But help cultivate intangible rights like IP? That's communism. Ridiculous.

Exogenous doesn't mean that it falls out of the sky, just that it's not a function of the endogenous variable(s) in the equation/system of equations.

You people are stupid.

I don't agree with calling people "stupid" for imperfect use of a word/concept that perhaps 1% of the population uses correctly (if they are aware of the distinction at all).

Well, perhaps it's because we've been paying attention and know that biomedical findings in mice often do not replicate, period, and even more often do not replicate in large animals, and of those that do, many don't replicate in humans.

Mice studies most often don't replicate in cancer treatments because the nature of the induced tumor is different in mice. But a small human trial has shown that 250 mg of NR boosts NAD(+) in cells by 50%.

Three more human trials have been conducted at the University of Iowa, the University of Colorado and the University of Copenhagen with published results likely this year. The University of Minnesota along with Mayo Clinic is testing 2000mg of NR on people with recent traumatic brain injuries and concussions.

So, I guess just keep paying the same close attention as you have been.

"Even the initial downturn [in soda consumption] only lowered the average Mexican’s daily caloric intake by 6 to 7 calories, or 0.2%, according to the study."

Senor Average Mexican left 4 tablespoons of soda in his Coke bottle before putting it out on the porch?

The Coca-Cola company owns, or has owned, brands of pop suitable for an adult palate. Its NZ brand L&P is delicious. Its brand (or former brand?) Peartiser is also pretty good stuff. Yet people, apparently grown up people, slurp down huge quantities of the brown sugar-water. And some of them, for heaven's sake, consume the stuff with food. All very odd.

The Mexican soda tax is "working" if it raises revenues to cover public expenditures that benefit all Mexican citizens. If the Mexican soda tax funds health care, it may be "working." Time will tell.

My understanding is that Canada funds socialist health care, in part, with heavy taxes on alcoholic and tobacco products. I fear that the ruling elites will deign to do that us. Ergo, I'm hoarding and rationing Dewar's Scotch Whisky.

If the taxes are used for unusual purposes (other than to fund public goods that benefit all citizens) such as disincentives or incentives for economic or (anti-)social activity, they may be inappropriate. In that case, taxation is theft.

FYI I'm not a fan of the "nanny" state.

At least hoard something better than Dewar's.

You do realize that excise taxes on tobacco and alcohol are astronomical in the U.S., right?
A fifth of whiskey pays $2.14 of tax to the feds, and up to $5 per fifth in state taxes.
The fed excise tax on cigars is over 50%, with a $0.40 per cigar cap.

I guess you could still bump them quite a bit, but they are already pretty high.

It's pretty low, internationally.

Even the initial downturn [in soda consumption] only lowered the average Mexican’s daily caloric intake by 6 to 7 calories, or 0.2%, according to the study.

Talk about defining impact down to levels derisory to anybody not inside the bubble (of Washington, DC).

"A pound is equivalant [sic] to 453.592 grams, and 1 gram of fat is equal to 9 calories." [Answers.com]

Less than 1 gram of fat or 1/454 of a pound.

I'd call it a rounding error but that would be an insult to rounding errors.

Times 365, though. So almost a pound a year. The difference of 30 pounds over someone's adult lifetime. That seems extraordinary, almost unbelievable, if true.

What's the sense of multiplying like this? It's not like each calorie you eat is stored. You eat 3 pounds of food a day, that's 1000 pounds a year and 30,000 pounds over someone's adult lifetime! If your logic worked, people wouldn't fit in houses.

Well if you eat 3 *extra* pounds of food a day, above your standard amount, that's exactly what would happen. Here the claim is that they went from intake of x calories per day to (x-6) calories per day. If that holds over long periods of time, that's an extraordinary result. I think it's doubtful; for various reasons, but if it's true it's a big deal.

Fat cells burn energy too. It's more complicated than that.

My gut tells me that Mexico's 10% soda tax by itself can't account for any change in consumption. Pop is so cheap, on a cents-per-calorie basis, that I don't see such a small tax affecting any household's budget. If it's 'working' at all, it would have to be due to a propaganda effect on shopping habits: "Oh yeah, this stuff is bad for me, that's why the government added the sales tax". And that PR effect may wear off quickly.

Obviously. A litre of cola in Mexico is the equivalent of 2$; who would possible think that a 20 cent tax would amount to anything? I mean, I'm sure it amounts to something, but surely its washed out in a sea of other variables.

You want to make a difference? Try a 100% tax. Or a 500% tax. See if that works. Is there anyone who honestly believes it wouldn't?

I'd be surprised if the tax is even being paid,lol

Coke Zero sells for more in the supermarkets than reg coke.

You can buy a 2.5 or 3 litre bottle of Coke for 22 pesos, $1.20 usd at todays exchange rate.

"Mexican Coke", made with sugar instead of HFCS sells quite well in the USA, maybe their increase of sales comes from that??

Would it be better for Mexico if the tax actually succeeded in significantly changing consumer behavior? Before you answer, consider the unique situation of Hawaii and its fifth highest in the nation excise taxes on tobacco products, which are proving to be too successful....

Sugar is addictive. Very addictive. On the level of cocaine or so. I am one of the few who could give it up without withdrawal syndrome, but plenty of people describe serious migraines and craving when giving up/reducing consumption of sugar.

In order to bring about some significant change in consumption, the tax would have to be exorbitant, similar to the tax on tobacco.

This would, of course, motivate people to smuggle sugar. Black market (white market?)

I do not believe that the taxation method will work. Counseling seems to me a better strategy.

“it can take a very long time to discover whether or not policies are working well.”

Sometimes not so long, Let's see what happens to smoking rates now that the FDA has outlawed vaping.

Does the study control for exports? We see a lot more Mexican Coke in Texas and California over the last few years (not sure about the rest of the country). It is popular because it contains sugar and not corn syrup. And, let me assure you, the taste of Coke with real sugar is superior to the taste with corn syrup, regardless of your health stance on HFCS.

Is the excise tax charged on Mexican Coke that is exported? If so, a funny result would be that U.S. consumers that buy Mexican Coke are paying a tax to the Mexican government that probably would not happen except for the protectionist policies of the U.S. around sugar production.

Nothing wrong with trying different approaches to improving public health, but surely the first thing to try is turning over label space to dietary warnings. Food that is basically all empty calories loses half or more of its label space to a warning. Food that is a step up from that gets more of their label space back, and so on until food that could be considered a sensible part of a healthy diet just has to carry normal nutritional information. This way processed food manufacturers will have something they care about at stake. Image and marketing. A a 10, 20, or 50% tax won't have much of an effect when it goes up against people's stomachs. While manufacturers might be worried about a losing a percent or two on sales volume, with all competitors equally hobbled no one is going to be hurt too bad and they little incentive to change what they sell to something healthier.

I was in Melbourne yesterday and bottles of sody pop were $5 each. Clearly, if people are willing to spend that much on sugary water they are dumb enough to spend $5.50. Or $5 if a 10% soda tax comes out of margins.

Most people can agree on soda, but what about steak? Bread? Eggs? A million other things? Every dessert is going to have crap on its label like we don't already know it's bad for us?

The idea is not to educate people. It is:

1. To enable people to quickly and easily see which are the healthier options. For example they can see see that the white bread has a huge and visually unappealing warning label while the high fibre, low GI (slowly digested) bread has a tiny warning label. and so influences which they chose, partly through making it easy to see which is the healthier but also through making the unhealthier choice come in an uglier looking packet.

2. But the main beneficial effect is to encourage manufacturers to produce healthier products to get more of their label space back. At the moment what incentive does a chocolate bar manufacturer have to make a healthier chocolate bar? None really. But if throwing in some muesli or dried fruit or nuts gets them a smaller warning label then they will have an incentive to make less fatal chocolate bars.

Note I assume this will only apply to processed packaged food and not steak, eggs, fresh fruits and vegetables, etc.

Maybe it might be a good idea for Mexico to come up with an acceptable substitute for soda as a daily beverage for the Mexican people. Like perhaps potable water? This is a country that fails to enforce basic sanitation sufficient to allow the emergence of a healthy population aspiring to middle class status, except in a few scattered jurisdictions. No wonder they all drink soda and become acclimated to the additional sugar.

"This point about the long run is relevant for assessing the ACA, minimum wage hikes, the euro, various tax cuts, financial regulation, and many many other policies. Relative price effects, secondary consequences, and “chances” of gaming the system are all much higher in the long run than the short."

Okay, so in the future, can our benevolent technocrats give us a precise timetable of when we can determine if their policy has failed? Otherwise it seems like you are justifying endless "well we don't know if it's working yet, it needs more time," and then we're all dead.

Turkey,

I agree with Tyler's comment and observation. It actually is grounded in research, particularly the earlier comment on the effect of laws in establishing social norms which then become even stronger than the "law" that was the start of the discussion. One example is cigarette smoking in restaurants.

If you want to see some research on this subject, I would recommend Behavioral Economics and Public Health (Oxford Press 2016) for summaries of research--both short and long term. See Chapter 6 and work by Brian Wansink at Cornell.

I don't disagree that it may take a long time to shift behavior, nor do I disagree that laws can shift social norms. But I think someone who is going to defend a policy by saying "it just needs more time to work" should be expected to give us a time by which they expect it to work, so we can judge it accordingly. Ideally, they should give this timetable when formulating a policy, so that it isn't just a post hoc rationalization for failure.

100 calorie soda package sizes reduce calorie consumption versus a higher 12 -16 oz default package size that is the only choice in some vending machines, although there are equally large water bottles.

Sometimes taxes and other signals cause you to think.

Or, rebel.

Sure, we have to collect taxes some way, so if we are going to be paternalistic I would prefer that we do it by taxing things we think are bad and cutting taxes on things we like (such as labor). I think getting down to packaging sizes is far too command-and-control.

Regardless, I think these paternalistic forays need deadlines after which we say: well that hasn't worked out, let's call it quits.

What is often missed, is that if a policy has bad side effects, over time it can be modified.

If one rigidly adheres to a "no intervention" philosophy of many libertarians, there is no opportunity to do better. One would have to maintain that it is impossible for the government to do any successful interventions, to justify being that rigid.

Painfully wrong. One can believe that actions can be successful and morally wrong simultaneously. The left has a hard time understanding this because they are moral relativists and consequentialists who don't believe in moral principles. See Haidt.

I see. The other guys don't have any moral principles. Because only your moral principles are "real" moral principles?

I cannot really say why buy I feel insulted buy dietary paternalism.

I think it's because it feels like they are concerned for you in the same way a rancher might be concerned for his cattle, rather than like a father for his children.

Well they assert their ownership stake in people when they claim they are owed taxes on income earned in foreign countries by virtue of birthright - like a slave master who leases slaves.

As far as I know, Mexico doesn't do that.

This is an attitude that is essentially saying that no policy can ever be called a failure, which of course is the exact opposite of what we need. (What we really should have are clear and defined failure criteria for any new policy with automatic repeal and reversal if those criteria are met.)

No. This is ONE year out. If they are still pushing that line in 10 years time (assuming still no change), your critique will be relevant.

The Age of Nudges is over?

In addition to the Pigouvian tax that Miguel mentions above, I also point out that I'd rather pay taxes on soda than textbooks.

Frank Ramsey might view this tax as a successful one in his theory of optimal taxation. Less behavioral impact means less deadweight loss.

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