Fiscal measures to improve diet

1. Fiscal measures to improve diet Martin O’Connell

2. People are usually in the best position to make consumption decisions • For most products people are generally able to determine whether consumption is in their best interests • But for certain products this may not always be the case • e.g. tobacco and alcohol • Is it also true for food products?

3. Information problems? • There are some reasons to believe people do not have the right information • Achieving a balanced diet is complex • There is evidence that in some cases people are poorly informed • Certain types of people are more likely to be less well informed • On the other hand many others are likely to make informed decisions • Extent of information problems among adults is unclear • But children are one particular group of concern • Firms often take advantage of people’s lack of information • e.g. fast food advertising aimed specifically at children

4. What are the policy options? • Information provision • Obvious policy response • Successful in other areas (e.g. campaign against drunk driving) • But message required in food markets is more complicated • And information requirements and receptiveness are highly variable across different people • Regulation • Policies that seek to change prices (taxation) …

5. Taxing unhealthy food products • The idea is that increasing the price of unhealthy products will encourage people to switch to healthier alternatives • Extent of switching will depend on • Size of the price increase • The availability of easily substitutable products • How much people like the taxed product • Impact of any given tax is uncertain • Will depend on whether consumption is driven by • Lack of information • Or love of the product

6. Firms might not pass the tax fully to prices • Size of price increase depends on how firms respond • Firms will base their pricing decision on the effect on their profits • Often they will respond to the introduction of a tax by increasing prices by less than the tax • This will diminish the ability levying a tax has to change people’s behaviour

7. Some other issues • Must decide what to tax • Calories • Fat, Salt, Sugar, … • ‘Unhealthy’ food products • Firms may also respond in other ways • e.g. to avoid a nutrient tax they may reformulate existing products or introduce new products

8. Summary • Information problems in the market for food provides a potential rationale for government intervention • Policies that improve consumer information seem well suited to the problem, but it is difficult to reach all consumers with the appropriate message • Fiscal measures may also help change behaviour, but how firms, as well as consumers, respond is key