Understanding the Effect of a Soft Drinks Industry Levy on Consumer Well-Being in the UK: First Estimates

Abstract

This paper is a first attempt to provide a quantitative evaluation of consumer well-being resulting from the UK Soft Drinks Industry Levy introduced in April 2018. Using a model setup that encompasses both a normal case and a Giffen case for sugary drinks consumption, a computational exercise is performed to quantify the welfare social loss for a variety of household incomes. The model demonstrates that the introduction of a soft drinks levy results in a non-trivial welfare loss, particularly in terms of monetary value and weight effect. We also find that the wealthiest individuals in society are affected positively by this levy, whilst the poorest segment of the population are adversely affected, especially in the presence of a binding nutritional constraint.

Keywords

• soda tax
• sugary drinks
• giffen goods
• nutritional constraint
• welfare social loss
• d11
• h21
• i31