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Can a ‘Fat Tax’ solve the worldwide obesity problem?

The year 2014 was marked as first time in global history in which more people were obese than underweight, turning obesity to one of the major global health problems. This is one of the results of the world’s biggest obesity study, led by researchers from the Imperial College London and, among others, the World Health Organization (see full article here). The excess weight harms health in many ways, to name just a few, diabetes and an increasing risk of a heart attack may be the consequence. As a result, health costs increased tremendously, depending on the empirical method and countries looked at, academics found that obese individuals face medical costs up to 150% higher than those with normal weight. These costs not only represent a high burden for the public health care system, indirect costs such as an increase in missing workdays leads to productivity reductions and thereby affects the entire economy negatively. Hence, an increasing number of governments tries to address the overweight issue using monetary incentives: The so called “Fat Tax”.

The tax’s objective is to increase prices for sugary or fatty products which should decrease demand and make consumers switch to alternative, healthier products. Hungary taxes all kinds of fast food while France focuses on soft drinks only. Denmark on the other hand, abolished its fat tax already one year after implementation. The UK (where average Body Mass Index is highest in Europe) will implement a sugar tax on soft drinks in 2018. Hence, governments face the difficult task of predicting consumers’ and producers’ reactions adequately. This is not always straight forward as the Danish case shows: Instead of reducing their consumption consumers switched to other markets and did their fatty shopping in neighboring countries. This hurt the regional economy and was one of the reasons for abandoning the policy so quickly. Experiences like this raise questions regarding  effectiveness of such taxes but empirical evidence is rare and overall mixed.The WHO, referring to Powell et al. (2013), recommends an increase of prices for sugary products of at least 20% going along with a reduction of prices for fruits and vegetables in order to effectively reduce obesity. In line with these results academics suggest that small taxes have no significant impact on obesity. Does this mean a high price increase is the only valid solution? Probably not, taking also into consideration results by  Muller et al.(2017) who raise equity concerns in that context. Their research indicates that especially low income households may face the extra burden of an additional price increase since high income households tend to have a healthier diet anyway.

Policy makers probably won’t be able to solve the issue by introducing a tax only. Consumers will at some point respond to prices but such policies should definetely be accompanied by educational programs that target the young and low income households to increase awareness of the tax and make people consume less sweets not only because of prices but because of their own good.

Julia Schmitjans

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Author: studentnovasbe

Master student in Nova Sbe

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