Effects of Taxing Sugar-Sweetened Beverage and Subsidizing Milk: Beverage Consumption, Nutrition, and Obesity among US Children

Taxing sugar-sweetened beverages (SSBs) has been proposed as a means to improve U.S. diet and health and generate revenue to address obesity-related issues. A related concern is that children’s intake of SSBs, a third that of milk consumption in the late 1970s, now equals milk consumption. Displacing milk by SSBs may shortchange the buildup of bone mass, increasing the risk of fractures and osteoporosis in later life. Accordingly, we examine the effects that a 20- percent SSB tax and a 20-percent milk price subsidy would have on the diet and health of American children. We estimated US beverage demand systems and used the estimated demand elasticities to examine the impacts of the hypothetical SSB tax and milk subsidy. Our results suggest that a 20-percent tax-induced increase in soda price alone would reduce calorie intakes by 40 calories a day among children, lowering the obesity rate from 16.1 percent to 13.4 percent and the overweight rate from 32 percent to 26.9 percent. When a 20-percent price subsidy for milk is bundled with the SSB tax, children would on average decrease their calorie intake (21 calories a day) and increase their calcium intake, but the overweight and obesity rates would actually increase by around 2 percent. The seemingly contradiction between the two averages, lower calories and higher obesity, is due to the fact that the majority of children (90 percent) remain unchanged in their weight classification under the price interventions but on average reduce their calorie intake. Six percent of children increase their calorie intake and gain enough weight to cross the overweight threshold, whereas four percent of children decrease their calorie intake to improve from being overweight to healthy weight. Therefore, when averaging the effects of the price interventions, we found a decrease in calorie intake and higher overweight and obesity rates.