Predicting the Effects of Sugar-Sweetened Beverage Taxes on Food and Beverage Demand in a Large Demand System

Am J Agric Econ. 2014 Jan 1;96(1):1-25. doi: 10.1093/ajae/aat049.


A censored Exact Affine Stone Index incomplete demand system is estimated for 23 packaged foods and beverages and a numéraire good. Instrumental variables are used to control for endogenous prices. A half-cent per ounce increase in sugar-sweetened beverage prices is predicted to reduce total calories from the 23 foods and beverages but increase sodium and fat intakes as a result of product substitution. The predicted decline in calories is larger for low-income households than for high-income households, although welfare loss is also higher for low-income households. Neglecting price endogeneity or estimating a conditional demand model significantly overestimates the calorie reduction.

Keywords: censored demand; obesity; price endogeneity; sugar-sweetened beverage tax.