Revisiting the Effects of Sugar Taxes on Sugary Drink Consumption: Evidence from the Random-Coefficient Demand Mode

Abstract

Berkeley’s initiative on sugar tax policy is currently debated and it is quickly expanding to other states in the United States. Previous literature highlights the importance of consumer heterogeneity in evaluating the effect of sugar taxes. In this study, we use a demand model in characteristic space —BLP RC Logit demand— to identify the policy effect on preferences for sugary drinks and potential substitution patterns over 22 sugary drink products. Our results suggest that sugar taxes cause average valuation of sugar content to change from negative to positive. This type of “reactance” response is not driven by consumers with higher than average SSB consumption patterns. An examination on demand elasticities suggests Berkeley consumers become more responsive to prices of sugary drinks due to the policy implementation; however, it does not drive consumers to shift to diet drinks.