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The 'Soda Tax' is Unlikely to Make Mexicans Lighter: New Evidence on Biases in Elasticities of Demand for Soda
by Mabel Andalón, John Gibson
(May 2017)

Abstract:
Mexico's 'soda tax' has been predicted to reduce average weights by two to four pounds, based on extant estimates of an own-price elasticity of quantity demand for soda of between −1.0 and −1.3. These estimates ignore consumer responses on the quality margin and correlated measurement errors. We use Mexican household budget survey data and city-level soda prices to estimate unrestricted demand models that correct for both errors. The corrected own-price elasticity of quantity demand is just −0.2 to −0.3, so tax-induced soda price increases might cut average weights by less than one pound, which is too small to improve health.
Text: See Discussion Paper No. 10765