Fiscal measures to improve diet
Martin O’Connell
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People are usually in the best position to make
consumption decisions
• For most products people are generally able to determine
whether consumption is in their best interests
• But for certain products this may not always be the case
– e.g. tobacco and alcohol
• Is it also true for food products?
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Information problems?
• There are some reasons to believe people do not have the right
information
– Achieving a balanced diet is complex
– There is evidence that in some cases people are poorly informed
– Certain types of people are more likely to be less well informed
• On the other hand many others are likely to make informed
decisions
• Extent of information problems among adults is unclear
• But children are one particular group of concern
• Firms often take advantage of people’s lack of information
– e.g. fast food advertising aimed specifically at children
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What are the policy options?
• Information provision
– Obvious policy response
– Successful in other areas (e.g. campaign against drunk driving)
– But message required in food markets is more complicated
– And information requirements and receptiveness are highly variable
across different people
• Regulation
• Policies that seek to change prices (taxation) …
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Taxing unhealthy food products
• The idea is that increasing the price of unhealthy products will
encourage people to switch to healthier alternatives
• Extent of switching will depend on
– Size of the price increase
– The availability of easily substitutable products
– How much people like the taxed product
• Impact of any given tax is uncertain
• Will depend on whether consumption is driven by
– Lack of information
– Or love of the product
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Firms might not pass the tax fully to prices
• Size of price increase depends on how firms respond
• Firms will base their pricing decision on the effect on their profits
• Often they will respond to the introduction of a tax by increasing
prices by less than the tax
• This will diminish the ability levying a tax has to change people’s
behaviour
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Some other issues
• Must decide what to tax
– Calories
– Fat, Salt, Sugar, …
– ‘Unhealthy’ food products
• Firms may also respond in other ways
– e.g. to avoid a nutrient tax they may reformulate existing products or
introduce new products
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Summary
• Information problems in the market for food provides a potential
rationale for government intervention
• Policies that improve consumer information seem well suited to
the problem, but it is difficult to reach all consumers with the
appropriate message
• Fiscal measures may also help change behaviour, but how firms,
as well as consumers, respond is key
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