CRF Blog

‘Sin’ taxes — eg, on tobacco — are less efficient than they look

by David De La Torre

The Economist reports that “Sin” taxes — eg, on tobacco — are less efficient than they look, but “they do help improve public health.”

Governments hope that just as taxes on alcohol and tobacco both generate revenue and reduce smoking and drinking, so sugar taxes will help curb obesity. Hungary, which has the highest rate of obesity in Europe, imposed a tax on food with high levels of sugar and salt in 2011. France did the same for sugary drinks in 2012. Several American cities, Thailand, Britain, Ireland, South Africa and other countries have since followed suit.

Sin taxes do change behaviour. Alcohol and tobacco are addictive, so demand for them is not as responsive to price changes as, say, the demand for airline tickets to fly abroad. But it is still more responsive than for many common household goods. Estimates vary from study to study, but economists find that on average, a 1% increase in prices is associated with a decline of around 0.5% in sales of both alcohol and tobacco ….

Data on the efficacy of sugar taxes are scantier, but the available evidence shows that they, too, lower consumption. [more]