A "fat tax" to encourage consumers to switch away from fats, sugar and processed foods

Résumé du document

People are obviously getting more and more fat. This fact cannot be denied. That is why, to curb this phenomenon, Kelly Brownell launched the idea of applying a fat tax on unhealthy food, in his article published in the New York Times in 1994. Such a tax could encourage people to buy less unhealthy food. From then on, the point is to analyze the tax features and its effects on general consumption. First, I will focus on the way of applying a new tax on fat products, studying the two goods market, vegetables and ice-cream, presented here. Then I will try to explain what effects the tax could generate on the consumption of these two goods. By doing so, it will help me to show that a fat tax could be a good way to prevent people from buying unhealthy food.

Extraits

[...] Then I will try to explain what effects the tax could generate on the consumption of these two goods. By doing so, it will help me to show that a fat tax could be a good way to prevent people from buying unhealthy food. There are different ways to approach a fat tax. First, the tax might depend on how fat the product is. Then, you have to choose which product to tax: should it depend on the product in itself, on the sugar content, or should it be based on the caloric content there is in it? [...]

[...] An indifference curve analysis helps to comprehend these changes. The diagram below shows how people will behave if ice-cream is taxed. Let us set up an example: Jim has an income of £30. The price of one kilogram of vegetables is and the price for one kilogram of ice-cream is The fat tax applied on ice-cream is high. It means the price of ice-cream will increase, up to a kilogram. At point Jim is maximising his utility: he can get 3kg of vegetables and 4kg of ice-cream. [...]

[...] Otherwise, the consumer will keep buying as much ice-cream whatever the price is. First, let us look at the attribute of the ice-cream, which will actually tell us the responsiveness of the demand for ice-cream to a change in the level of income. We can classify different types of goods. Then, is ice-cream a necessity or an inferior good? By definition the income elasticity shows how responsive the demand for one good is when the income changes.[4] Thus, if rich people spend less for ice-cream when their income goes up, we can consider ice-cream as an inferior good: the income elasticity is negative. [...]

[...] But it does not mean that ice-cream is a necessity, because we are not told at all about any increase in their income or in their spending for ice-cream. We need another data to predict the potential effects of a tax on the consumption of ice-cream and vegetables. Indeed, we have to study the structure of the market presented in this example. We would like to know if taxing ice-cream would encourage people to buy more vegetables. From then on, we first need to know whether these two goods are complements or substitutes. [...]

[...] As for the consumption of vegetables, the net effect remains unclear. Indeed, the two effects work against each other: on one hand, the income effect will affect people's income they can buy less-, and on the other hand, the substitution effect will encourage people to buy more vegetables. Thus, this analysis has shown that the fat tax could be a solution to fight against obesity, because it could economically prevent people from buying fat products. However, like a journalist from the Economist said in 2003: “Society has a legitimate interest in fat, because fat and thin people both pay for it. [...]