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Should soda drinks be taxed in Singapore?

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Melinda Kung

on 19 May 2014

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Transcript of Should soda drinks be taxed in Singapore?

Quick quiz:

-How many states have already imposed additional taxes on soda or sweetened drinks?
Proposed Solution to above market failure

- Practical difficulty in determining the amount of negative externalities emitted
- Cannot measure negative externalities in monetary terms -> unable to tax exactly = to MEC
(Over or Under taxing of soda will still lead to the problem of market failure)
- Also, soda is not the only food/beverage that can lead to health problems like obesity.
- There are many other food that is also high in sugar/cholesterol that can cause these problems.
A quick question: Why not tax on all high sugar/cholesterol food rather than only taxing soda?
Should soda drinks be taxed in Singapore?
To find out more, let us watch a short video.

How does the market fails?

Ans: 33
-Government impose tax = to MEC at socially optimal level of output Qs

- Marginal Private Cost (MPC): Cost of buying soda drinks
- Marginal Private Benefit (MPB): Satisfaction received from drinking soda
>Qe amount of soda is transected into the economy where MPB=MPC (Net Private Benefit is maximized)
- However, as more people continues to consume soda, the society becomes more and more unhealthy.

> decrease life expectancy and slow down the economy (Marginal External Cost) = Soda is a demerit good due to generation of negative externalities. (E.g. National defence -> Obese people generally slower and unfit -> unable to protect people -> people suffers)

-> *Divergence between MPC and MSC due to the MEC*

-> Hence, the economy should consume at Qs, when MSB=MSC where the net social cost is minimized
(Assuming there is no positive externality, MPB=MSB)
tax imposed on producers (↑COP -> shift MPC curve vertically upwards to coincide with MSC)

- Firms are forced to internalise external cost and face the true cost of production

- Now, the society is consuming at Qs(Socially optimum level of output, where MSC = MSB)

Soda tax is not feasible
There are many evidences to show that implementation of soda tax is not feasible in many countries to curb the problem of obesity.
1.“ Health advocates have proposed “sin taxes” as a way to curb behavior like smoking or snacking, but a new study suggests extra sales taxes on soda won't decrease obesity. “ (Shamane Mills, March 24, 2014)

2. “ Not everyone who drinks soda, and thus who would pay a
soda tax, ends up obese, making a broad excise tax on soda
a blunt and inefficient mechanism for curbing obesity. “
(Andrew Chamberlain, Gerald Prant, June 13, 2006)

3. In East Harlem, which has one of the highest obesity rates of any
neighborhood in the city, soda tax would have little effect on
consumers’ decisions. (NY, 2008)

http://ronideutch.blogspot.sg/2010/04/pros-and-cons-of-soda-taxes.html (Roni Deutch)
http://cityroom.blogs.nytimes.com/2008/12/16/soda-tax-plan-sparks-a-debate/ (ny times, city room blogs)
http://www.nytimes.com/2008/12/17/nyregion/17sugartax.html (NY, 2008)
http://taxfoundation.org/blog/case-against-soda-taxes-curb-obesity (Andrew Chamberlain, Gerald Prant, June 13, 2006)
http://www.wpr.org/sin-taxes-soda-may-not-decrease-obesity-new-study-finds (Shamane Mills, March 24, 2014)
http://www.clintonfoundation.org/blog/2014/05/08/raising-awareness-childhood-obesity-epidemic#sthash.TyicOBpP.dpuf (May, 2014)

Full transcript