Market and welfare effects of a nationwide sugar-sweetened beverage tax in the U.S.

Introduction: Sugar sweetened beverage (SSB) taxes have been widely proposed and implemented as public health policies to reduce sugar consumption and improve population health. However, the system wide market and welfare impacts of such taxes, particularly when accounting for interactions across related beverage markets and heterogeneous economic agents, remain insufficiently understood. This study aims to evaluate the market and welfare effects of introducing a nationwide SSB tax in the U.S., with particular attention to the distributional impacts on consumers, producers, and related supply chains.

Methods: To analyze the system wide market and welfare impacts of a nationwide SSB tax in the U.S., the paper develops an integrated multi market framework of heterogeneous consumers, heterogeneous producers, and imperfectly competitive beverage companies. Analytical and simulation results are used to evaluate the impacts of the tax.

Results: Analytical and simulation results reveal that the increased prices of soda and fruit juice that follow the tax introduction cause significant losses to consumers (the intended policy beneficiaries) and soda manufacturers, and gains in the fruit juice supply chain. The analysis also shows that, even after accounting for potential health related cost savings from reduced SSB consumption, a nationwide SSB tax in the U.S. will impose welfare losses on consumers.

Discussion: The results indicate that reinvesting SSB tax revenues in public health related programs can not only offset these losses but also generate substantial net welfare gains for consumers. While the analysis is conducted in the U.S. context, the proposed modeling framework is more general and can be readily adapted to assess the incidence and welfare effects of SSB taxes in other regions or countries. JEL classification codes: .