The Effects of A Soft Drink Tax in The Uk

HEALTH ECONOMICS
Health Econ. 24: 583–600 (2015)

Published online 26 March 2014 in Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1002/hec.3046
THE EFFECTS OF A SOFT DRINK TAX IN THE UK
RICHARD TIFFINa,*, ARIANE KEHLBACHERa and MATTHEW SALOISb

a
University of Reading, Department of Food Economics and Marketing, UK
b
Florida Department of Citrus, Economic and Market Research Department, USA
ABSTRACT
The majority of the UK population is either overweight or obese. Health economists, nutritionists and doctors are calling for
the UK to follow the example of other European countries and introduce a tax on soft drinks as a result of the perception that
high intakes contribute to diet-related disease. We use a demand model estimated with household-level data on beverage
purchases in the UK to investigate the effects of a tax on soft drink consumption. The model is a Quadratic Almost Ideal
Demand System, and censoring is handled by applying a double hurdle. Separate models are estimated for low, moderate
and high consumers to allow for a differential impact on consumption between these groups. Applying different hypothet-
ical tax rates, we conclude that understanding the nature of substitute/complement relationships is crucial in designing an
effective policy as these relationships differ between consumers depending on their consumption level. The overall impact
of a soft drink tax on calorie consumption is likely to be small. Copyright © 2014 John Wiley & Sons, Ltd.
Received 17 December 2012; Revised 4 February 2014; Accepted 7 February 2014
KEY WORDS: soft drinks; tax policy; obesity; quadratic almost ideal demand; Kantar World Panel
1. INTRODUCTION
There is growing interest in the use of fiscal interventions in the UK to address the increased incidence of diet-
related disease. The magnitude of the problem is widely acknowledged. The 2010 Health Survey for England
reports that 68% of men and 58% of women and about 30% of children aged 11–15 years are classed as either
overweight or obese. These individuals face increased risk of type-2 diabetes and heart and liver disease, and
ultimately, their life expectancy is curtailed. This places a significant burden on society. In England in 2002, the
estimated cost was around £6.6–7.4 billion equating to £2.3–2.6% of total net National Health Service expen-
diture (McCormick, 2007). The costs arising in terms of lost earnings due to reduced productivity from absence
and premature death were estimated to be £2350–2600 million for the year 2001/2002, excluding costs associ-
ated with uncertified sickness absence (McCormick, 2007).
The economic rationale for imposing a sales tax on soft drinks is twofold. First, consumers may not be aware
of the external costs of consumption when they make a purchase, and therefore, they may over-consume. The
tax aims to reduce consumption to a socially optimal level where the full external costs are taken into account.
Second, by imposing a tax, revenue can be raised to cover the costs of addressing diet-related diseases. A
number of jurisdictions have already adopted this approach. In the USA, 33 States levy sales taxes on diet
and regular soft drinks at an average rate of 5.2% (Smith et al., 2010). Likewise, in Europe, Hungary has
introduced excise taxes on foods with high sugar and salt content, and increased tariffs on soft drinks and
alcohol. Finland and Denmark introduced taxes on sugary products such as soft drinks, ice cream and chocolate
in 2011. Denmark also introduced a tax on foods with high saturated fat content in 2011. However, the tax was
abolished in 2012, and a proposal for a sugar tax was shelved in the same year. In 2012, France introduced a tax
of €0.077/litre on sugar-sweetened drinks.
*Correspondence to: Department of Food Economics and Marketing, University of Reading, Earley Gate, P.O. Box 237, Reading, RG6
6AR, UK. E-mail: j.r.tiffin@reading.ac.uk
Copyright © 2014 John Wiley & Sons, Ltd.

584 R. TIFFIN ET AL.
There is a debate in the UK about the introduction of a tax on unhealthy foods and drinks. Ng et al. (2011)
examine beverage consumption in the UK and argue that a 10% increase in the price of sugar-sweetened
beverages could potentially reduce consumption by 7.5 ml/capita per day. Their analysis does not distinguish
between different types of sugar (and non-sugar)-sweetened beverages. Likewise, some studies that investigate
the effects of a soft drink tax on consumption in the USA (e.g. (Bergtold et al., 2004; Brownell and Frieden,
2009; Chen et al., 2009; Dharmasena and Capps, 2011)) fail to make a distinction between diet and regular soft
drinks or fail to consider cross-price effects arising from substitute and complementary relationships between
different beverages (Smith et al., 2010). These effects are an important consideration in the evaluation of the
effectiveness of a soft drink tax and its possible unintended consequences. For example, consumers may choose
to substitute other, untaxed high-calorie beverages for those that are taxed, or there may be a dominant income
effect resulting from an increase in the price of regular drinks, which leads to reduced consumption of low-calorie
drinks even if they are untaxed. Studies that take cross-price effects into account reveal a more complex picture in
terms of the effects of a soft drink tax on reducing calorie intake. Smith et al. (2010) estimate an Almost Ideal
Demand System (AIDS) to look at the effects of a 20% tax on caloric sweetened beverages. They find that aver-
age daily calorie intake from caloric sweetened beverages falls by 25.4% for adults and by 25.3% for children.
Once the effects of the tax on substitute drinks is accounted for, however, the net decline in average calorie intake
per day from caloric sweetened beverages drops to 24.1% for adults and 22.1% for children because, in particular,
consumers substitute towards juices. Zhen et al. (2010) estimate a dynamic AIDS and having found most cross-
price elasticity estimates among sugar-sweetened beverages to be small in magnitude, conjecture that the extent of
demand switching from sugar-sweetened beverages to other sugary foods might be rather limited, although they
do find that a tax will increase demand for low-fat milk more than whole milk. By contrast Zhen et al. (2014)
argue that conditional models of demand potentially overlook important substitutions that might occur when
prices change and estimate an alternative ‘incomplete’ model of demand. Thus, in addition to a smaller reduction
in calorie consumption in response to a tax on sugar-sweetened beverages, their results also highlight increases in
salt and fat consumption. Briggs et al. (2013) estimate an AIDS to simulate the health effects of a 20% tax on
sugar-sweetened drinks in the UK for different income groups. They find that the tax reduces the number of obese
and overweight adults in the UK by 1.3% and 0.9%, respectively, and the prevalence of obesity is reduced for the
highest income third by 2.1%, for the middle income third by 0.9% and for the lowest income third by 1.3%.
Harding and Lovenheim (2014) use household scanner data to estimate a structural Quadratic Almost Ideal
Demand System (QAIDS) to simulate the effects of product taxes on soda and sugar-sweetened beverages in
the USA. They find that a 20% tax on soda decreases total purchased calories by 4.84% and sugar consumption
by 10%, whereas a 20% sugar tax decreases total calories by 18% and sugar consumption by 16%.
The work we report here extends that of Briggs et al. (2013) by differentiating the responsiveness of consumers
according to their soft drink consumption levels. Moreover, this paper reports estimates obtained using more de-
tailed data set in terms of the soft drink product categories that we analyse. This paper also simulates more detailed
tax scenarios based on those implemented in France and Hungary. Our approach is similar to Harding and
Lovenheim (2014) who also use scanner data and estimate a QAIDS, but as Harding and Lovenheim (2014) use
an instrumental variable approach to account for price endogeneity, we use Bayesian inference and a multi-lateral
quantity index to account for this. Our estimation method explicitly accounts for censoring and imposes curvature
on the underlying cost function, thereby ruling out the possibility of a Giffen good arising through a spurious sign
on the substitution effect. Harding and Lovenheim (2014) also develop a novel method for determining product
categories on the basis of nutritional content, whereas our approach to classification is more conventional.
2. METHODS
The soft drinks market is complex, comprising a range of brand categories including colas, other sodas, fruit
juices, bottled waters and sports drinks, within each of which there is wide range of alternative brand choices.
This complexity means that a tax placed on a segment of the market that is perceived to be unhealthy will have
Copyright © 2014 John Wiley & Sons, Ltd. Health Econ. 24: 583–600 (2015)
DOI: 10.1002/hec
THE EFFECTS OF A SOFT DRINK TAX IN THE UK 585
Figure 1. Hierarchical structure of the demand system
ramifications elsewhere through substitution and complementarity. Because these ramifications will not
necessarily increase the perceived healthiness of the choice, we use a demand system that is able to account
for cross-price effects across categories, which are differentiated according to sugar content and (perceived)
healthiness. In order to keep the dimensions of the estimated models manageable, we make a number of
separability assumptions. First, we assume that food and drinks are separable, and as a result, our demand
system focuses on drinks. We also assume separability between a number of drinks categories in order to adopt
a hierarchical approach to the estimation (Figure 1). Drinks are grouped according to flavour (e.g. cola vs fruit),
carbonation (e.g. juice drinks vs soft drinks) and type of sweetener (artificial and sugar). The aggregation we
adopt means that some censoring remains, and we use an estimator that accounts for this. In the case of sports
drinks, however, censoring of the diet variant precluded the separate estimation of its demand function even
with this estimator. A demand system is estimated for each of the blocks in Figure 1. Thus, at the top level,
there is a model to represent the consumer’s decision to allocate overall expenditure between broad food cate-
gories including drinks. Next, the beverages model represents the consumer’s decision to allocate their bever-
ages budget between the soft drinks through squash1 categories. Below this, the soft drinks, juice and cola
categories each have a model explaining the budget allocation between a further disaggregation, for example,
regular and diet soft drinks.
1
Fruit-flavoured syrup
DOI: 10.1002/hec
Elasticities that are estimated within each sub-system are conditional and assume that expenditure on the sys-
tem in question remains constant. Following Edgerton (1997), we combine the estimated conditional elasticities
to obtain unconditional elasticities over all stages of the model in which category expenditure is free to change.
To estimate the models for each sub-system, we follow Tiffin and Arnoult (2010) in using a Bayesian
method to estimate a QAIDS (Deaton, 1980; Banks et al., 1997) adapted to incorporate, depending on the data
set used, an infrequency of purchase or double-hurdle model (Cragg, 1971) to account for censoring. In the
model, quantity demanded is treated as a latent variable using which the QAIDS can be written:
mþ1
X ! " # ! "$2
! eh λi eh
sih ¼ αi þ γij ln pjh þ βi ln þ ln i ¼ 1; …; m þ 1 (1)
i¼1
aðpÞ bðpÞ aðpÞ
where
!
mþ1
X mþ1 X
mþ1
1X mþ1
β
aðpÞ ¼ exp α0 þ αi ln pih þ γij ln pih ln pjh ; bðpÞ ¼ ∏ pi i ; (2)
i¼1
2 i¼1 j¼1 i¼1
pjh is the price of the jth good to the hth household, eh is the total expenditure and s!ih is the latent share:
pih q!ih
s!ih ¼ (3)
∑pih q!ih
in which q!ih is the latent quantity demanded. m equations are estimated to avoid non-singularity arising from the
adding-up condition. The model is estimated using a Monte Carlo Markov chain (MCMC) algorithm during
which the latent quantities are estimated using data augmentation (Tanner and Wong, 1987). The MCMC al-
gorithm is a method of drawing a sample from the posterior distribution of the parameters of interest to provide
the basis for inference. The system is estimated to comply with adding-up, symmetry, homogeneity and con-
cavity. The uncompensated conditional price elasticities2 within the rth group are computed for each individual
household (h) as follows:
γij sjðrÞh
εijðrÞh ¼ &δij þ & ωi (4)
siðrÞh siðrÞh
where γij and ωi are the means of the draws in the MCMC sample corresponding to the parameters defined in
equation (1), si(r)h is the value of the ith share in group r for the hth household and
δii ¼ 1 (5)
δij ¼ 0 ∀ i≠j: (6)
Expenditure elasticities are calculated as
ωi
εiðrÞh ¼ 1 þ (7)
siðrÞh
The conditional elasticities matrices thus constitute the mean of all household-specific elasticity matrices. In
our model, we have assumed two (and in some cases three) stage budgeting (Edgerton, 1997). For the two-stage
cases, we compute the overall expenditure elasticity as
εi ¼ εiðrÞ εðrÞ (8)
2
The conditional price elasticities express the effect of a price change on demand assuming that expenditure on the goods within the relevant
sub-group remains constant.
DOI: 10.1002/hec
where ε(r) is the average expenditure elasticity for the rth group in the one-step-above model in the hierarchy.3
The unconditional price elasticities are computed as
εij ¼ εijðrÞ þ εiðrÞ sjðrÞ εðrÞðrÞ (9)
where ε(r)(r) is the average own-price elasticity of the rth commodity in the one-step-above model in the
hierarchy. Where three stages are assumed, the elasticities in the first two stages are combined using equations
(8) and (9) to yield a subsidiary conditional elasticity, which is combined with the third stage elasticities, in a
further application of the equations, to yield the overall unconditional elasticities.
3. DATA
The demand systems in Figure 1 are estimated from two data sets. The ‘food and drink’ model is estimated
using data from the 2010 Living Costs and Food Survey, which is a repeated cross-sectional study using a
multi-stage stratified random sample. Expenditure and food consumption are reported for 5116 UK households.
Data are collected from each household for a 2-week period, and these periods are distributed across the whole
year for different households. Foods and drinks are aggregated into eight nutritionally meaningful groupings:
dairy & eggs (e.g. milk, yoghurt and cheese eggs), meat (e.g. poultry, pork, beef and processed meat), fish,
fruits & nuts, vegetables, fats & starches (e.g. bread, pies, flour, potatoes and oil), alcohol (e.g. beer and wine)
and non-alcoholic drinks (e.g. coffee, tea, juice, water and soft drinks). Because purchases are reported over a
2-week period, an infrequency of purchase model (Cragg, 1971; Blundell and Meghir, 1987) is used in the
analysis, which assumes that zero observations arise because the household was consuming from stocks.
The second data set is obtained from KANTAR WorldPanel. It consists of drink purchases made by 24 495
UK households at supermarkets and confectioners, tobacconists and newsagents over a 51-week period starting
in August 2010. Participating households are recruited using quota sampling. We hypothesise that responses to
tax-induced price changes in soft drinks vary between consumers depending on the quantity of soft drinks con-
sumed. We therefore partition the sample into high volume consumers consisting of households consuming
more than seven portions4 of soft drinks per person per week (n = 1453), moderate volume consumers
consisting of households consuming between three and seven portions of soft drinks per person per week
(n = 3354), and low volume consumers consisting of households consuming less than three portions of soft
drinks per person per week (n = 19 688).5 The socio-demographic characteristics of the three sub-samples are
reported in Table I. The 51-week consumption data are aggregated over time. These data are analysed using
a double-hurdle model specification (Cragg, 1971), which assumes that zero consumption arises because the
household’s preferences or income are such that they do not buy the good.
Table II reports the shares of expenditure on food and drinks, and Table III reports the shares of expenditure
on the drinks categories together with average expenditure on them. Diet cola and juices & nectars represent
around half of all expenditure on drinks. Expenditure on diet cola is the largest share of total expenditure for
high consumers, whereas low consumers spend the largest proportion on juices & nectars. Whereas diet cola
accounts for a larger proportion of total expenditure than regular cola, the situation is reversed for other soft
drinks where expenditure on the regular version exceeds that on diet.
In equation (1), budget shares are expressed as functions of prices and household expenditures, which are
treated as exogenous variables. Prais and Houthakker (1955) argue that price variation could exist in cross-
3
For example, the expenditure elasticity of beverages in the model, which explains the allocation of expenditure between food and
beverages.
4
1 portion = 250 ml.
5
Unlike the Kantar data, the Living Costs and Food sample is not divided into high, moderate and low consumers because soft drinks are
often bought in bulk and a 2-week period was deemed to be too short to establish whether a household can be considered as a high, mod-
erate or low consuming household.
DOI: 10.1002/hec
Table I. Sample summary statistics

Consumers
High Moderate Low
Average age of housewife 50.6 48.93 47.06

Average number of children 0.28 0.54 0.76
Household income N % N % N %
£0–£9999 389 26.74 542 16.15 2811 14.28
£10 000–£19 999 582 40.00 1200 35.77 6461 32.82
£20 000–£29 999 273 18.76 707 21.07 3928 19.95
£30 000–£39 999 158 10.86 660 19.67 4187 21.27
£40 000–£49 999 41 2.82 193 5.75 1600 8.13
£50 000–£59 999 6 0.41 32 0.95 512 2.60
£60 000–£69 999 4 0.27 12 0.36 111 0.56
£70 000 + 1 0.07 8 0.24 45 0.23
No answer 1 0.07 1 0.03 33 0.17
Table II. Shares and total expenditure on food and drink

Dairy & eggs 0.116
Meat 0.194
Fish 0.039
Fruits & nuts 0.070
Veg 0.086
Fats & starches 0.322
Alcohol 0.122
Drinks 0.050
Aver. weekly food expend. £71
Table III. Shares and total expenditure on drinks

Consumers
High Moderate Low

Diet soft drinks 0.006 0.005 0.003
Regular soft drinks 0.142 0.149 0.119
Juice drinks w/ sweetener 0.029 0.040 0.059
Juice & nectars 0.148 0.211 0.338
Water 0.052 0.063 0.082
Diet cola 0.363 0.246 0.104
Regular cola 0.152 0.142 0.090
Sports drinks 0.018 0.021 0.020
Diet squash 0.063 0.086 0.124
Regular squash 0.027 0.037 0.061
Average annual expenditure £242 £164 £70
sectional data due to the volume purchased. As a result, prices could be endogenous because a demand shock,
which increases the volume purchased, may also lead to the consumer purchasing larger bottle sizes. This may
lead to average price paid per unit falling, and price paid is therefore correlated with the shock. Related to this
are problems associated with the use of unit values as prices in the estimation of the demand functions because
consumers’ choice of quality or brand and quantity is embedded in these unit values so that they reflect differ-
ences in quality in addition to reflecting differences in the true price, thereby also leading to endogeneity (Cox
and Wohlgenant, 1986; Deaton, 1988). Our data are highly disaggregated and distinguish between, for exam-
ple, cola sold in 1-l bottles and 33-cl cans as well as the cola brand. At this level, the data can be thought of as
DOI: 10.1002/hec
referring to the elemental goods defined by Nelson (1991) as being of homogeneous quality. When data are
available at this level, the use of a superlative index (Diewert, 1976) offers some mitigation towards the con-
cerns over the potential endogeneity of prices. A superlative price index implies that prices are aggregated
using a second order approximation to the consumers cost function. The aggregate price therefore represents
the cost of achieving a standardised level of satisfaction6 from the range of goods, which contribute to the
aggregate. The price, as measured by the index, is therefore unaffected by a shock, which changes either the
total quantity of the aggregate or its composition because such a shock would not affect the standardised level
of satisfaction. We perform the aggregation using an EKS quantity index (Elteto and Koves, 1964; Szulc,
1964), which is a multi-lateral version of the superlative Fisher Ideal index, and then compute the implicit price
index. The EKS index was chosen because it is transitive and base-household invariant, meaning the index
numbers for the households are independent of the choice of base household and the sequence with which
the index is applied to the households.
4. RESULTS AND DISCUSSION
The unconditional own-price elasticities are reported in Tables IV and V, and the drink elasticities are reported in
Tables XI–XIII.7 All of the main food groups exhibit inelastic demand with fats & starches and fruits & nuts the
most inelastic with values of !0.6. Dairy & eggs is the most elastic grouping at !0.9. Drink elasticities range in
value from !0.5 for diet soft drinks, regular soft drinks and diet cola among low consumers to !2.5 for water
among high consumers. All own-price elasticities, and the expenditure elasticities for the top level food and drink
model, have the 95% highest posterior density intervals excluding zero.8 In comparison, the systematic review of
food demand price elasticities by Andreyeva et al. (2010) reports own-price elasticities for soft drinks and other
beverages between !0.8 and !1.0. The wider range that we obtain may be attributed to the highly disaggregated
categories in our model. There is variation between groups for the drink elasticities, with those for high consumers
tending to be the largest. Demand by high consumers is elastic for all beverages except diet cola (!0.9). In all three
groups, demand for water is the most elastic (!2.5, !2.4 and !1.7 for high, moderate and low consumers, respec-
tively) followed by sports drinks for high and moderate consumers (!2.1, !1.6) and diet squash for high con-
sumers (!1.2). Demand by low consumers for regular and diet soft drinks, juices & nectars, and diet and
regular cola is inelastic (!0.6 to !0.5); demand by moderate consumers for the same drinks, as well as for juice
drinks with sweetener, is more elastic but still inelastic, ranging from !0.8 to !0.9.
We first simulate scenario A1, which is based on the soft drink tax regime introduced in France and involves a
tax of €0.072/litre, or equivalently £0.06/litre, on regular and diet soft drinks and juice drinks with sweeteners.
Second, in scenario A2, we simulate the same regime as in A1 but with a lower tax rate of £0.02/litre. Third,
in scenario B1, we simulate a tax of £0.06/litre, on regular soft drinks and juice drinks with fruit content lower
than 25%.9 Fourth, in scenario B2, which is based on the tax regime recently introduced in Hungary, we simulate
a tax of 7 HUF/litre, or equivalently £0.02/litre, on regular soft drinks and juice drinks with sweeteners. For each
tax scenario, we compute the percentage change of the average prices of the drink groups concerned implied by
the excise tax (Table VI) and report the resultant percentage change in quantity consumed, taking cross-price
effects into account. Results for tax scenarios A1, A2, B1 and B2 are reported in Tables VII–X, respectively.
To reflect the uncertainty in our elasticity estimates, we evaluate the change in quantity demanded that would
occur with the price changes in Table VI for every set of elasticities in the MCMC sample. We report the mean
of these changes and the 95% highest posterior density interval. We also report a weighted average of the change
in consumption across the three groups for which we estimate the model.
6
This may be thought of as a quality adjusted quantity.
7
The full elasticity matrices including food groups are available from authors on request.
8
Where the interval does not include zero, it can be considered as a Bayesian analogue of a classical test showing a significant difference
from zero.
9
We call this group in the data ‘juice drinks with sweeteners’.
DOI: 10.1002/hec
Table IV. Unconditional own-price elasticities for main food groups

Food group Estimate Std. error
Dairy & eggs !0.924 (0.057)
Meat !0.758 (0.034)
Fish !0.656 (0.083)
Fruits & nuts !0.627 (0.067)
Veg !0.890 (0.045)
Fats & starches !0.621 (0.023)
Alcohol !0.878 (0.076)
Table V. Unconditional own-price elasticities for drinks

Consumers
Food group High Moderate Low

Diet soft drinks !1.305 (0.210) !0.784 (0.061) !0.462 (0.038)
Regular soft drinks !1.271 (0.405) !0.759 (0.039) !0.456 (0.070)
Juice drinks with sweetener !1.192 (0.162) !0.939 (0.013) !1.000 (0.048)
Juice & nectars !1.094 (0.190) !0.994 (0.094) !0.982 (0.261)
Water !2.466 (0.434) !2.357 (0.090) !1.659 (0.084)
Diet cola !0.945 (0.090) !0.978 (0.038) !0.487 (0.038)
Regular cola !0.991 (0.115) !0.866 (0.037) !0.566 (0.038)
Sports drinks !2.087 (0.393) !1.567 (0.196) !1.122 (0.198)
Diet squash !1.145 (1.000) !1.285 (0.130) !1.181 (0.177)
Regular squash !1.094 (0.997) !1.425 (0.129) !1.126 (0.135)
Standard errors in brackets.
Table VI. Change in price (in %)

Scenario A1 A2 B1 B2
Consumers High Mod. Low High Mod. Low High Mod. Low High Mod. Low
Diet soft drinks 13.71 13.34 13.20 4.57 4.45 4.40 0.00 0.00 0.00 0.00 0.00 0.00
Regular soft drinks 8.38 8.41 7.58 2.79 2.80 2.53 8.38 8.41 2.53 2.79 2.80 2.53
Juice drinks w/ sweetener 5.42 5.49 5.32 1.81 1.83 1.77 5.42 5.49 1.77 1.81 1.83 1.77
Juice & nectars 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Diet cola 9.89 9.05 8.07 3.30 3.02 2.69 0.00 0.00 0.00 0.00 0.00 0.00
Regular cola 8.89 8.51 7.63 2.96 2.84 2.54 8.89 8.51 2.54 2.96 2.84 2.54
In scenario A1 and A2, both diet and regular soft drinks, and colas as well as juice drinks with added sweet-
eners are taxed. Consider A1 first. High consumers significantly reduce their consumption of diet and regular
soft drinks (!31.1% and !40.9%) and diet cola (!8.4%). The increase in consumption of regular cola (0.4%)
is insignificant. Moderate consumers significantly reduce consumption of regular soft drinks (!23.6%), juices
with sweetener (!4.3%), diet and regular cola (!10.5% and !15.2%) and diet and regular squash (!9.9% and
!14.2%). The differing responses in cola consumption for high and moderate consumers illustrate the impor-
tance of taking into account substitution between drinks in response to the tax. For high consumers’ diet cola is
a strong substitute for regular cola, and because this policy changes the price of both, the effects of these two
price changes effectively counteract one another. By contrast, for moderate consumers, diet cola is a strong
complement10 to regular cola consumption and the effects of the price changes reinforce one another.
10
The strong complementarity is a result of a relatively weak conditional substitution effect and a strong expenditure effect.
DOI: 10.1002/hec
Table VII. Total percentage change in quantity consumed – scenario A1
Tax High consumers Moderate consumers Low consumers Weighted

(£/litre) Mean 95% CI Mean 95% CI Mean 95% CI average
Dairy & eggs 0.234 !0.104 0.641 0.183 !0.081 0.501 0.102 !0.045 0.280 0.121
Meat !0.588a !1.114 !0.151 !0.459a !0.870 !0.118 !0.257a !0.487 !0.066 !0.304
Fish 0.237 !0.844 1.756 0.185 !0.659 1.372 0.104 !0.369 0.767 0.123
Fruits & nuts 1.930 !0.530 5.250 1.507 !0.414 4.100 0.843 !0.231 2.293 0.998
Veg 0.930 !0.180 2.310 0.726 !0.140 1.804 0.406 !0.078 1.009 0.481
Fats & starches !0.119a !0.243 !0.007 !0.093a !0.190 !0.005 !0.052a !0.106 !0.003 !0.061
Alcohol 0.077 !0.721 0.965 0.060 !0.563 0.754 0.034 !0.315 0.422 0.040
Diet soft drinks 0.06 !31.103a !58.075 !7.854 !15.331 !33.873 1.306 !2.161 !5.563 0.856 !5.681
Regular soft drinks 0.06 !40.934a !75.497 !11.176 !23.596a !46.257 !3.553 !9.090a !12.501 !6.027 !12.965
Juice drinks w/ sweetener 0.06 !10.368 !27.354 3.336 !4.319a !7.170 !1.891 !6.742a !11.209 !2.771 !6.625
Juice & nectars !7.893 !19.306 1.297 !3.192 !7.864 0.718 !5.918a !10.391 !1.936 !5.662
Water !0.871 !69.007 34.398 !0.180 !15.772 11.271 2.390a 0.462 4.300 1.844
Diet cola 0.06 !8.407a !11.698 !5.449 !10.515a !14.864 !6.535 !3.313a !4.628 !1.984 !4.601
Regular cola 0.06 0.447 !4.496 5.082 !15.204a !17.773 !12.742 !3.243 !4.603 !1.871 !4.662
Sports drinks !1.135 !60.227 28.214 0.756 !9.377 7.810 1.280 !1.821 3.841 1.065
Diet squash 11.052 0.117
!23.988 !67.757 !9.935a !22.434 !0.151 !5.190 !11.640 !6.954

Regular squash !16.976 !48.325 7.929 !14.228a !32.440 !0.204 !3.365 !7.526 0.075 !5.660
a
The 95% highest posterior density interval excludes zero.
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Table VIII. Total percentage change in quantity consumed – scenario A2


(£/litre) Mean 95% CI Mean 95% CI Mean 95% CI Average
Dairy & eggs 0.078 !0.035 0.214 0.061 !0.027 0.167 0.034 !0.015 0.093 0.040
Meat !0.196a !0.371 !0.050 !0.153a !0.290 !0.039 !0.086a !0.162 !0.022 !0.101
Fish 0.079 !0.281 0.585 0.062 !0.220 0.457 0.035 !0.123 0.256 0.041
Fruits & nuts 0.643 !0.177 1.750 0.502 !0.138 1.367 0.281 !0.077 0.764 0.333
Veg 0.310 !0.060 0.770 0.242 !0.047 0.601 0.135 !0.026 0.336 0.160
Alcohol 0.026 !0.240 0.322 0.020 !0.188 0.251 0.011 !0.105 0.141 0.013
Diet soft drinks 0.02 !10.368a !19.358 !2.618 !5.110 !11.291 0.435 !0.720 !1.854 0.285 !1.894
Regular soft drinks 0.02 !13.645a !25.166 !3.725 !7.865a !15.419 !1.184 !3.030a !4.167 !2.009 !4.322
R. TIFFIN ET AL.
Juice drinks w/ sweetener 0.02 !3.456 !9.118 1.112 !1.440a !2.390 !0.630 !2.247a !3.736 !0.924 !2.208
Juice & nectars !2.631 !6.435 0.432 !1.064 !2.621 0.239 !1.973a !3.464 !0.645 !1.887
Water !0.290 !23.002 11.466 !0.060 !5.257 3.757 0.797a 0.154 1.433 0.615
Diet cola 0.02 !2.802a !3.899 !1.816 !3.505a !4.955 !2.178 !1.104a !1.543 !0.661 !1.534
Regular cola 0.02 0.149 !1.499 1.694 !5.068a !5.924 !4.247 !1.081 !1.534 !0.624 !1.554
Sports drinks !0.378 !20.076 9.405 0.252 !3.126 2.603 0.427 !0.607 1.280 0.355
Diet squash !7.996 !22.586 3.684 !3.312a !7.478 !0.050 !1.730 !3.880 0.039 !2.318
Regular squash !5.659 !16.108 2.643 !4.743a !10.813 !0.068 !1.122 !2.509 0.025 !1.887
a
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Table IX. Total percentage change in quantity consumed – scenario B1

(00A3/litre) Mean 95% CI Mean 95% CI Mean 95% CI average
Dairy & eggs 0.099 !0.044 0.272 0.098 !0.044 0.270 0.070 !0.031 0.191 0.076
Meat !0.249a !0.472 !0.064 !0.247a !0.469 !0.063 !0.176a !0.333 !0.045 !0.190
Fish 0.101 !0.358 0.744 0.100 !0.355 0.739 0.071 !0.252 0.525 0.077
Fruits & nuts 0.818 !0.225 2.225 0.812 !0.223 2.209 0.576 !0.158 1.568 0.623
Veg 0.394 !0.076 0.979 0.391 !0.076 0.972 0.278 !0.054 0.690 0.300
Alcohol 0.033 !0.305 0.409 0.032 !0.303 0.406 0.023 !0.215 0.288 0.025
Diet soft drinks !6.675 !17.728 3.321 !1.448 !11.447 7.546 3.786a 1.697 5.617 2.448
Regular soft drinks 0.06 !14.927a !29.274 !2.462 !9.367 !21.559 1.400 !3.485a !5.599 !1.658 !4.969
Juice drinks w/ sweetener 0.06 !10.364a !18.014 !4.233 !4.843a !6.529 !3.380 !6.298a !9.355 !3.584 !6.340
Juice & nectars !7.885a !13.241 !3.554 !4.074a !6.677 !1.859 !5.474a !8.537 !2.745 !5.425
Water !6.747 !41.936 8.914 !0.717 !9.208 5.678 1.188 !0.181 2.461 0.456
Diet cola 0.678 !1.021 2.280 !1.817 !4.236 0.338 0.587 !0.158 1.356 0.264
Regular cola 0.06 !5.438a !7.283 !3.618 !7.367a !8.321 !6.468 !3.300a !4.106 !2.502 !3.984
Sports drinks !5.721 !37.455 7.113 0.266 !5.605 4.129 0.793 !1.339 2.543 0.334
Diet squash 15.618 0.646
!2.401 !22.766 !5.777 !12.544 !0.415 !2.984 !7.377 !3.331

Regular squash !1.701 !16.057 11.084 !8.273 !17.957 !0.585 !1.935 !4.781 0.421 !2.789
a
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Table X. Total percentage change in quantity consumed – scenario B2


(£/litre) Mean 95% CI Mean 95% CI Mean 95% CI average
Dairy & eggs 0.033 !0.015 0.091 0.033 !0.015 0.090 0.023 !0.010 0.064 0.025
Meat !0.083a !0.157 !0.021 !0.082a !0.156 !0.021 !0.059a !0.111 !0.015 !0.063
Fish 0.034 !0.119 0.248 0.033 !0.118 0.246 0.024 !0.084 0.175 0.026
Fruits & nuts 0.273 !0.075 0.742 0.271 !0.074 0.736 0.192 !0.053 0.523 0.208
Veg 0.131 !0.025 0.326 0.130 !0.025 0.324 0.093 !0.018 0.230 0.100
Alcohol 0.011 !0.102 0.136 0.011 !0.101 0.135 0.008 !0.072 0.096 0.008
Diet soft drinks !2.225 !5.909 1.107 !0.483 !3.816 2.515 1.262a 0.566 1.872 0.816
Regular soft drinks 0.02 !4.976a !9.758 !0.821 !3.122 !7.186 0.467 !1.162a !1.866 !0.553 !1.656
R. TIFFIN ET AL.
Juice drinks w/ sweetener 0.02 !3.455a !6.005 !1.411 !1.614a !2.176 !1.127 !2.099a !3.118 !1.195 !2.113
Juice & nectars !2.628a !4.414 !1.185 !1.358a !2.226 !0.620 !1.825a !2.846 !0.915 !1.808
Water !2.249 !13.979 2.971 !0.239 !3.069 1.893 0.396 !0.060 0.820 0.152
Diet cola 0.226 !0.340 0.760 !0.606 !1.412 0.113 0.196 !0.053 0.452 0.088
Regular cola 0.02 !1.813a !2.428 !1.206 !2.456a !2.774 !2.156 !1.100a !1.369 !0.834 !1.328
Sports drinks !1.907 !12.485 2.371 0.089 !1.868 1.376 0.264 !0.446 0.848 0.111
Diet squash !0.800 !7.589 5.206 !1.926a !4.181 !0.138 !0.995 !2.459 0.215 !1.110
Regular squash !0.567 !5.352 3.695 !2.758a !5.986 !0.195 !0.645 !1.594 0.140 !0.930
a
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Households that are considered low consumers exhibit significant reductions in the consumption of regular soft
drinks (!9.1%), juice drinks with sweeteners (!6.7%), juice & nectars (!5.9%) and diet cola (!3.3%). They
also significantly increase water consumption by 2.4%. The pattern of responses is identical under A2 but with
smaller effects as a result of the lower tax rates. One unforeseen beneficial impact of the policy is that under
both A1 and A2, there is a significant but small reduction in meat and fats & starches consumption by all types
of consumers.
Our results show that the effectiveness of a policy such as that introduced in France, which taxes diet and
regular soft drinks alike, is dependent on the substitute/complement relationship between the two types of
drink. A complementary relationship can arise where the consumer is unwilling to substitute diet cola for
regular and where there is a large reduction in overall expenditure on cola. In this case, a tax on diet cola will
reinforce the impacts of tax on regular cola. Where the goods are substitutes, however, the effects of the taxes
on both types of cola tend to counteract one another.
The Hungarian style tax regimes in scenarios B1 and B2 affects regular soft drinks, regular cola and juice
drinks with sweeteners. Households considered to be high consumers exhibit a significant reduction in con-
sumption of regular soft drinks (!15.0%), juice drinks with sweeteners (!10.4%), juice & nectar (!7.9%)
and regular cola (!5.4%). The effect on regular soft drinks is much smaller than in the French style tax scenario
in part because of the absence of a reinforcing effect from a price increase for diet soft drinks. Moderate con-
sumers significantly reduce their consumption of juice drinks with sweetener (!4.8%), juices & nectars
(!4.1%), regular cola (!7.4%) and both diet and regular squash (!5.8% and !8.2%). Changes in the untaxed
drinks groups such as juices & nectars, and diet squash are attributable to complementary relationships with
juices with sweeteners and diet squash, respectively. These complementary relationships are in turn due to
the reduction in expenditure on the group as whole countering any substitution towards the untaxed category.
Low consumers significantly reduce consumption of regular soft drinks (!4.5%), juice drinks with sweeteners
(!6.3%), juices & nectars (!5.5%) and regular cola (!3.3%). Low consumers also show a significant increase
in their consumption of diet soft drinks (3.8%). Scenario B2 shows the same pattern in consumption changes
but with reduced magnitudes due to the lower tax rate (Table X).
Evaluating the financial impact of the soft drink tax by looking at Tables I and III, we find that the propor-
tion of low income households is particularly high among the high consumer group and at the same time high-
consuming households spend a larger proportion of their food expenditure on soft drinks. Thus, although food
taxes are generally regressive, the effect is amplified in the case of a soft drink tax because lower-income
households tend to consume more soft drinks in absolute quantities and they also spend a larger share of their
food expenditure on the taxed drink categories. Turning to consider the impact of the tax on energy intake, our
data show that sugar-sweetened soft drinks contribute on average 0.334% of total energy intake (MJ). By
comparison, the National Diet and Nutrition Survey (NDNS) Rolling Programme Year 1 (2008/9) reports
the percentage contribution to total calorie intake from non-diet soft drinks to be 2.6% for adults and 5.4%
for children. The divergence in estimates is partly due to the fact that the NDNS category ‘soft drinks, not diet’
includes diluting juice, which is not included in our estimate because they are not taxed. We find that as a result
of taxes in scenario A1, A2, B1 and B2, consumers reduce their consumption of both regular soft drinks and
cola on average by 6.1%, 2.3%, 4.3% and 1.4%, respectively. This translates into a reduction in energy intake
from sugar-sweetened soft drinks of 0.02% (A1), 0.008% (A2), 0.014% (B1) and 0.005% (B2), respectively. It
appears that the difference between the French and Hungarian tax regime is marginal in terms of their effect on
energy intake. By comparison, Harding and Lovenheim (2014) find that a 20% tax on soda decreases total
purchased calories by 4.84%.
A number of caveats to our analysis are warranted. The most important concerns the assumption that the full
burden of the tax is passed on to the consumer. In practice, this is unlikely to be the case, first because even a
limited demand response will lead to some of the burden falling on the producer. Additionally, the demand
response is likely to be complex, with consumers taking the opportunity to switch some purchases to larger
volume, discounted purchases. Further, producers and retailers are likely to spread the cost of the tax across
products by raising prices of both taxed and non-taxed beverages. Overall, therefore the price changes, which
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596
Table XI. Elasticity estimates – high consumers

Diet soft Regular soft Juice drinks Juice & Diet Regular Sports Diet Regular
drinks drinks w/ sweetener nectars Water cola cola drinks squash squash

Diet soft drinks !1.305a !0.414 !0.138a !0.700a !0.011 !0.661 !0.277 !0.002 !0.701a !0.294a
(0.210) (0.352) (0.061) (0.311) (0.008) (0.691) (0.289) (0.002) (0.217) (0.091)
Regular soft drinks !1.261a !1.271a !0.185a !0.934a !0.015 !0.881 !0.369 !0.003 !0.935a !0.392a
(0.210) (0.039) (0.003) (0.074) (0.011) (0.174) (0.016) (0.000) (0.017) (0.069)
Juice drinks w/ !0.020a !0.479a !1.192a !0.462 !0.004 0.027 0.011 !0.001 !0.227 !0.095
sweetener (0.009) (0.017) (0.013) (0.097) (0.014) (0.268) (0.024) (0.000) (0.005) (0.019)
Juice & nectars !0.013a !0.320a !0.973a !1.094a !0.003 0.018 0.007 0.000 !0.152 !0.064
(0.006) (0.016) (0.013) (0.094) (0.014) (0.269) (0.024) (0.000) (0.005) (0.019)
Water !0.042 !1.001 !0.146 !0.739 !2.466a 0.652 0.273 !0.009 !0.729 !0.306
(0.043) (0.034) (0.002) (0.049) (0.090) (0.138) (0.012) (0.000) (0.019) (0.078)
Diet cola 0.019a 0.456a 0.048a 0.242a 0.009a !0.945a !0.383a 0.002a 0.348a 0.146a
R. TIFFIN ET AL.
(0.002) (0.022) (0.001) (0.031) (0.004) (0.038) (0.037) (0.000) (0.008) (0.032)
Regular cola 0.016a 0.377a 0.040a 0.200a 0.007a 0.574a !0.991a 0.001a 0.288a 0.121a
(0.003) (0.025) (0.001) (0.036) (0.004) (0.039) (0.037) (0.000) (0.009) (0.037)
Sports drinks !0.035 !0.851 !0.092 !0.465 !0.027 0.513 0.215 !2.087a 0.093 0.039
(0.040) (0.032) (0.003) (0.069) (0.015) (0.190) (0.017) (0.196) (0.013) (0.054)
Diet squash 0.026 0.616 0.128 0.647 0.025 !2.219a !0.929a 0.006 !1.145 !0.928
(0.028) (0.071) (0.006) (0.155) (0.023) (0.344) (0.031) (0.001) (0.130) (0.128)
Regular squash 0.018 0.436 0.090 0.457 0.018 !1.570a !0.657a 0.004 !0.673 !1.094
(0.020) (0.046) (0.004) (0.101) (0.015) (0.223) (0.020) (0.001) (0.130) (0.129)
a
The 95% highest posterior density interval excludes zero. Monte Carlo standard errors in brackets.
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Table XII. Elasticity estimates – moderate Consumers
Diet soft Regular soft Juice drinks Juice & Diet Sports Diet Regular
drinks drinks w/ sweetener nectars Water cola Regularcola drinks squash squash

Diet soft drinks !0.784a 0.119 !0.107 !0.558 !0.009 !0.378 !0.219 0.000 0.028 0.012
(0.061) (0.278) (0.073) (0.380) (0.008) (0.439) (0.254) (0.001) (0.163) (0.069)
Regular soft drinks !0.754a !0.759a !0.130 !0.680 !0.011 !0.460 !0.266 0.000 0.034 0.015
(0.061) (0.039) (0.003) (0.074) (0.011) (0.174) (0.016) (0.000) (0.017) (0.069)
Juice drinks w/ 0.000 0.004 !0.939a !0.384a 0.002 0.058 0.033 0.000 0.063a 0.027a
sweetener (0.001) (0.017) (0.013) (0.097) (0.014) (0.268) (0.024) (0.000) (0.005) (0.019)
Juice & nectars 0.000 0.006 !0.838a !0.994a 0.004 0.097 0.056 0.000 0.106a 0.045a
(0.002) (0.016) (0.013) (0.094) (0.014) (0.269) (0.024) (0.000) (0.005) (0.019)
Water !0.005 !0.132 0.012 0.065 !2.357a 0.066 0.038 !0.002 !0.078 !0.033
(0.009) (0.034) (0.002) (0.049) (0.090) (0.138) (0.012) (0.000) (0.019) (0.078)
Diet cola 0.012a 0.325a 0.041a 0.213a 0.007a !0.978a !0.561a 0.001 0.037 0.016
(0.002) (0.022) (0.001) (0.031) (0.004) (0.038) (0.037) (0.000) (0.008) (0.032)
Regular cola 0.000 0.000 0.000 0.000 0.000 !0.866a !0.866a 0.000 0.000 0.000
(0.001) (0.025) (0.001) (0.036) (0.004) (0.039) (0.037) (0.000) (0.009) (0.037)
Sports drinks 0.000 0.004 !0.007 !0.035 !0.004 0.054 0.031 !1.567a 0.054 0.023
(0.006) (0.032) (0.003) (0.069) (0.015) (0.190) (0.017) (0.196) (0.013) (0.054)
Diet squash !0.016a !0.446a 0.022 0.113 0.024a !0.436 !0.252 0.004 !1.285a !1.061a
(0.007) (0.071) (0.006) (0.155) (0.023) (0.344) (0.031) (0.001) (0.130) (0.128)
Regular squash !0.023a !0.638a 0.031 0.161 0.034a !0.625 !0.361 0.006 !0.813a !1.425a
(0.010) (0.046) (0.004) (0.101) (0.015) (0.223) (0.020) (0.001) (0.130) (0.129)
a
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Table XIII. Elasticity estimates – low consumers

Diet soft Regular soft Juice drinks w/ Juice & Diet Regular Sports Diet Regular
drinks drinks sweetener nectars Water cola cola drinks squash squash

Diet soft drinks !0.462a 0.503a !0.028 !0.159 0.001 0.018 0.016 0.001 !0.200a !0.098a
(0.038) (0.070) (0.030) (0.171) (0.004) (0.055) (0.048) (0.000) (0.083) (0.041)
Regular soft drinks !0.436a !0.456a !0.028 !0.161 0.001 0.018 0.016 0.001 !0.202a !0.099a
(0.038) (0.039) (0.003) (0.074) (0.011) (0.174) (0.016) (0.000) (0.017) (0.069)
Juice drinks w/ !0.002 !0.084 !1.000a !0.021 !0.001 !0.051 !0.044 0.000 !0.054 !0.027
sweetener (0.003) (0.017) (0.013) (0.097) (0.014) (0.268) (0.024) (0.000) (0.005) (0.019)
Juice & nectars !0.002 !0.085 !0.844a !0.982a !0.001 !0.051 !0.044 0.000 !0.054 !0.027
(0.003) (0.016) (0.013) (0.094) (0.014) (0.269) (0.024) (0.000) (0.005) (0.019)
Water 0.000 0.012 0.022 0.124 !1.659a 0.148a 0.128a 0.000 0.067 0.033
(0.001) (0.034) (0.002) (0.049) (0.090) (0.138) (0.012) (0.000) (0.019) (0.078)
Diet cola 0.002a 0.084a 0.046a 0.262a 0.018a !0.487a !0.039 0.001a 0.398a 0.195a
R. TIFFIN ET AL.
(0.001) (0.022) (0.001) (0.031) (0.004) (0.038) (0.037) (0.000) (0.008) (0.032)
Regular cola 0.003a 0.097a 0.053a 0.300a 0.021a 0.003 !0.566a 0.001a 0.457a 0.224a
(0.001) (0.025) (0.001) (0.036) (0.004) (0.039) (0.037) (0.000) (0.009) (0.037)
Sports drinks 0.001 0.053 0.002 0.012 0.003 0.058 0.050 !1.122a 0.017 0.008
(0.002) (0.032) (0.003) (0.069) (0.015) (0.190) (0.017) (0.196) (0.013) (0.054)
Diet squash !0.004 !0.163 0.001 0.005 0.005 !0.266a !0.230a 0.000 !1.181a !0.847a
(0.004) (0.071) (0.006) (0.155) (0.023) (0.344) (0.031) (0.001) (0.130) (0.128)
Regular squash !0.003 !0.105 0.001 0.003 0.003 !0.173a !0.149a 0.000 !0.614a !1.126a
(0.002) (0.046) (0.004) (0.101) (0.015) (0.223) (0.020) (0.001) (0.130) (0.129)
a
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we have simulated, are likely to represent an upper bound on the impacts of a given tax. A further limitation is
that the model is estimated only on the basis of beverage consumption at home and we therefore assume that
consumers respond similarly to price changes for consumption out of the home.
5. CONCLUSION
We have examined the likely effectiveness of four hypothetical soft drink tax scenarios in the UK. In particular,
by using a demand system, which is disaggregated across beverage categories and consumption levels, we have
analysed whether the impacts of the policy will be different between high, moderate and low levels of consump-
tion and whether they will be moderated or enhanced by substitution among different types of soft drink. Our re-
sults indicate that the response by households with high levels of consumption is greater and that substitution has
some impacts on the likely effectiveness of a tax. In particular, if a tax is applied to both diet and regular drinks, in
some cases, substitution leads to a moderation of the impacts of the tax, whereas in others, complementarity
enhances the impacts. Additionally, where taxes are untargeted, there are significant changes in demand for a
number of non-taxed categories, in particular, diet squashes, and juices & nectars. In both cases, complementarity
leads to a decline in consumption for moderate consumers. In the case of juices & nectars, therefore, the benefits
of the tax in terms of reduced calorie consumption extend beyond the taxed categories.
The primary goal of a tax on beverages is to reduce calorie consumption and, in spite of the comparatively
large changes in demand by some households that the taxes induce, the changes in calorie consumption that
result are modest. This is due to the small proportion of total calorie consumption that is accounted for by
the beverages that are taxed. The changes in calorie consumption, which we report, relate only to consumption
in the home, but even if they double with the inclusion of away-from-home consumption, they are likely to
remain modest.
Our overall conclusions are that first, the comparative effectiveness of targeted and untargeted policies is not
as clear cut as might be expected and depends on the nature of the complement/substitute relationships among
the good, and second, although the taxation of beverages will have some of the desired impacts on high-calorie
beverage consumption, its overall impact on calorie consumption is likely to be small.
CONFLICT OF INTEREST
A potential conflict of interest exists because Ariane Kehlbacher was funded by the Union of European Soft
Drinks Associations.
ACKNOWLEDGEMENT
Funding for this study was provided by the Union of European Soft Drinks Associations.
ETHICAL STATEMENT
No ethical issues.
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DOI: 10.1002/hec
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HEALTH ECONOMICS

Health Econ. 24: 583–600 (2015)