Sugar-sweetened Beverage (SSB) Tax and the Impact on the Prices of SSBs, Artificially-sweetened Beverages (ASB), and Unsweetened Beverages in Oakland, CA

In recent years, a number of local jurisdictions in the U.S. have imposed excise taxes on non-alcoholic beverages. The motives for such taxation are two-fold, broadly: public health and government revenue. One premise of the first motive is the research evidence on the negative health effects, including but not limited to obesity, associated healthcare costs and productivity losses from excessive sugar consumption. Average added-sugar intake in the U.S. has substantially increased over time and sugar-sweetened beverages (SSB) have been shown to make up almost half of added-sugar intake in the American diet. These factors support the plausibility of taxing SSBs to be an effective public health policy strategy to combat obesity and related conditions and their costs.

Economic theory suggests that the desired reduction in SSB consumption may be realized if there is an increase in the retail price of SSBs attributable to these taxes, holding everything else constant, referred to as price pass-through of taxes in the literature. This fundamental prediction of the theory raises the question of whether SSB excise taxation increases the retail prices faced by the consumers of these products.

Berkley, CA, was the first local jurisdiction in the U.S. to introduce an excise tax on SSBs. Since 2015, four cities in CA (Berkeley, Albany, Oakland, and San Francisco) have adopted taxes on SSBs. Using difference-in-differences approach, a control group and pre- and post-event research design, this paper examines the effect on retail prices of an SSB excise tax in the amount of one-cent per fluid ounce in the city of Oakland in CA, implemented effective July 1, 2017.

We used a validated and reliable food store audit instrument to collect data on availability and prices, including any ongoing price promotions, for a rich set of non-alcoholic beverage products found in various types of small- and large-scale retail food stores one-month before and six-months and twelve-months after the tax implementation in both the intervention and the control cities. We examine the effect of the tax on SSB, artificially-sweetened beverage (ASB), and unsweetened beverage prices. Furthermore, we examined the price effects by store type and by store neighborhood demographic and socio-economic characteristics.

Our results indicate that there is pass-through of the tax into the retail prices of beverages. Although, such pass-through is less than full, it is substantial and persists both six- and twelve-months post-tax implementation. In general, we find that there is a positive price pass-through of the tax in the amount of 0.50 to 0.85 cents for both SSBs and ASBs, overall and by type, but no such pass-through is present in the prices of unsweetened products. Our results show that tax pass-through varies by store type and product type. Not only is the SSB and ASB price pass-through persistent in the longer-run (i.e., twelve-months post-tax), but also the magnitude of the pass-through generally is higher in the longer- than the short-run.