Les Cahiers de Recherche - HEC Paris
Taxation and Economic Incentives on Health-Related Commodities: Alcohol, Tobacco and Food
() and Franco Sassi
Abstract: This chapter provides a detailed analysis of the economic,
legal and public policy rationales for the application of taxes and other
fiscal measures on health-related commodities. The motivation for such
taxes has been more often linked to the fiscal revenues generated than to
their potential public health benefits. However, especially in more recent
times, an increased emphasis has been placed on the latter by many
governments, as evidence emerged of the adverse public health, social and
economic consequences of the consumption of certain commodities. An
increasing number of governments are seeking to expand their use of fiscal
measures to promote healthier behaviours, not only by increasing tax rates
on commodities such as tobacco products and alcoholic beverages, but also
by exploring the scope for taxing selected foods and non-alcoholic
beverages as a way to make people’s diets healthier. A number of countries
apply different tax rates to certain food categories, and some have
specific taxes on foods high in salt, sugar or fat, and on sugary drinks.
Only in the past two years, countries such as Denmark, Hungary, Finland and
France introduced taxes on various foods and non-alcoholic beverages, and
many more have been debating the possible use of similar measures. The key
public health rationale for the use of taxes on health-related commodities
lies in their ability to change people’s consumption behaviours. Additional
health benefits may derive from the role possibly played by taxes as
incentives to product reformulation. For instance, in 2012, many beer
producers in the United Kingdom decreased the alcohol content of their
brands sold in the United Kingdom by 0.2% to avoid an increase in duties.
As with other attempts to use taxes to prevent some adverse outcome (e.g.
environmental taxes), a key issue becomes the proximity of the tax point to
the behaviour being targeted. The closer is the tax point to the behaviour,
then (other things being equal) the more likely is the tax to have a
beneficial impact. Excises introduced for public health purposes illustrate
the dilemma clearly. Although for administrative reasons the tax may be
levied earlier in the supply chain, the tax point is generally the purchase
of the product by a consumer. Tobacco is always harmful, in whatever way
and quantity it is consumed (although the harm will be even greater in an
environment which results in secondary smoking). The relationship is less
strong with alcohol, because the quantity consumed and the manner in which
it is consumed (e.g. regular vs. binge drinking) determines the harm which
may be caused. This relationship is even looser with diet-related taxes.
This does not mean that taxation is an inappropriate instrument, but rather
that, in addition to the harms discouraged by the tax, the welfare of a
broader group of consumers will be affected.
Keywords: Taxation; Public Health; Fat Tax; Risk Regulation; Lifestyle Risk; Non Communicable diseases; EU Law; WTO law; Paternalism; Nudge; (follow links to similar papers)
JEL-Codes: I18; K23; K32; K33; K34; K42; L51; L66; (follow links to similar papers)
21 pages, February 25, 2014
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