Socio-economic characteristics and the effect of taxation as a health policy instrument
Introduction
Globally, there are more than 1 billion overweight adults, and at least 300 million of these are obese.2 Furthermore, there are 17.6 million children under five who are estimated to be overweight (WHO, 2003). Although obesity should be considered a disease in its own right, it is, together with smoking, one of the key determinants for other lifestyle-related chronic diseases. Obesity is estimated to account for 2–6% of the total health care costs in several developed countries, but the true costs are undoubtedly much greater, as not all obesity-related conditions are included in the calculations (WHO, 2003). Both in countries with publicly financed health services and in countries with privately financed health services but with equally distributed rates of payment for everybody, this means that the unhealthy eating or lack of exercise of one citizen may impose economic burdens, externalities, on other citizens (tax-payers, employers, colleagues). A range of incentive-based economic instruments may be useful to adjust economic incentives in such a way that these externalities are internalised. Direct instruments such as a BMI tax or BMI-graduated health care costs (see for example Bhattachary and Sood, 2003) might be effective, but probably politically unacceptable. The present study analyses the effects of introducing taxes that change the relative prices of food (making healthy foods cheaper relative to unhealthy foods). This is a more indirect measure, as it targets overweight and future health through changes in the demand for foods.
The use of taxes and subsidies on foods as a means of improving the health of the population has been on the political agenda for a long time in several countries, including the UK and Denmark. The issue has also been a subject of theoretical interest (see for example Aronsson and Thunström, 2005, Cash et al., 2005, Scroeter et al., 2005). The effect of income and prices on nutrient intake is not a new issue in empirical economics either. Two approaches have been taken: a “direct” approach where the demand for specific nutrients is regressed on relevant variables (see for example Subramanian and Deaton, 1996, Chesher, 1998) and an “indirect” approach where changed nutrient intake is calculated through changes in food demand. The latter requires that in the first stage an estimation of a food demand system is made, and then in a later stage the effect of changed prices and/or income on food demand is translated into changed nutrient consumption. This approach is followed in, for example, Angulo et al., 2003, Ramezani et al., 1995, Huang, 1999. In this paper, we choose the “indirect approach”. This is due to the fact that food is bought of other reasons than pure nutritional value and we therefore assume that consumers purchase decisions is between products and not between nutrients. While earlier studies show changes in average nutrient demand due to changed prices, this study compares changes in nutrient demand due to changed prices across age groups and social classes. This means that the analysis provides new insight into whether the social bias in diet composition will increase or decrease through the application of a tax instrument.
The rest of the paper is organised as follows sections: the trends in food consumption and obesity in Denmark; the model applied in the study and the scenarios selected; the data and estimation procedures in more detail; and the results. Last section contains a conclusion and a discussion of policy implications.
Section snippets
Trends in Danish food consumption and obesity
About 10% of the Danish population were obese in 2000, a figure which is at the lower end of the scale in comparison with the figures for obesity in most other European countries (OECD, 2004). With an increase of about 6% points since the late 1980s (a doubling), Denmark is also fairly representative with regard to trends in obesity rates. Research show that the level of obesity depends on the socio-demographic characteristics of households for example, there are more obese people among the
Model overview
The analysis of the impact of food taxes on diet quality is carried out by combining price elasticities, calculated from parameters estimated in econometric models of food demand for five social classes
Food demand model
The food demand model is based on economic demand theory, which assumes that consumers maximise utility subject to a budget constraint. Assuming standard properties of the utility function, this implies that the demand for individual commodities can be derived as a function of the price of the commodity under consideration, the prices of other commodities, and the budget available for consumption. In the empirical study below, the Almost Ideal Demand System (AIDS) model (Deaton and Muellbauer,
Results
Fig. 2 shows the aggregate changes in demand for saturated fats, sugar and fibre due to the taxation scenarios specified aimed at single food commodities or single nutrients. If we compare the changes in demand for nutrients brought about by direct and indirect taxation, a larger effect is seen when the tax or subsidy is levied directly on the nutrient content than when it is levied indirectly through tax or subsidy on food commodities. For example, if we wanted to increase the demand for fibre
Conclusion and policy implications
This paper analyses the use of incentive-based instruments in nutritional policy by quantitative calculations, where the nutritional effects of a food tax levied either directly on nutrients or indirectly through taxes on food commodities are compared for different age groups and social classes. Across socio-demographic groups, social classes 4 and 5 generally have the greatest improvements in diet composition in the scenarios considered. This is in accordance with our initial target groups.
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