Can a "soda tax" really curb consumption?

Now, if you want to change consumers’ behavior with a tax, the tax should be “salient.” That’s tax-speak for “able to be seen and felt.” You can see exactly why in this neat study on tax salience and tax rates by Amy Finkelstein.

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Here’s where things get complicated: What does it mean to be salient? A 2009 paper by Raj Chetty, Adam Looney, and Korey Kroft found that a shelf price with a built-in excise tax is more likely to reduce demand than a tacked-on sales tax. Tatiana Homonoff and Jacob Goldin (a former TPC intern) decided to look more closely at the consumers. They found that low-income consumers responded to both tax-inclusive shelf prices and the tax added at the register. High-income customers were the ones likely to ignore the sales tax.

Back to Vermont: Imagine it enacts its sin tax. A mom strolls down a grocery aisle and sees a 12-pack of that orange-flavored drink, the one that isn’t soda but is subject to the tax, the one that she believes is healthy. It’s about $3 more expensive than it used to be. Will she keep strolling and find something else, or will she shrug and put it in her cart?

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