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A new research report from the VATT Institute for Economic Research has highlighted that the imposition of a candy tax, leading to higher prices, did not significantly deter the consumption of sweets and ice cream in Finland. Conversely, the increased tax on sugary drinks effectively shifted consumer behavior towards sugar-free alternatives, showcasing a nuanced effect of consumption taxes on public health goals.
Introduced to curb the consumption of unhealthy foods, the candy tax and its subsequent increase failed to make a dent in the consumption patterns of sweets and ice creams, as per the findings of the VATT and the Finnish Tax Research Unit (FIT). The tax hike on sugary beverages in 2014, however, led to a notable pivot towards sugar-free drinks, indicating that the tax’s impact is contingent on the availability of close, healthier substitutes.
This comprehensive study, titled “Studying a Sin Tax Scheme with Multiple Reforms – Lessons for Consumption Taxation,” was conducted by Tuomas Kosonen of VATT and FIT, researcher Sami Jysmä of Labore, and assistant professor Riikka Savolainen of Swansea University (UK). It underscores the effectiveness of health-based taxes in modifying consumption patterns only when taxed products have readily available and healthier alternatives that are not subject to the tax.
The research delves into Finnish data alongside international economic studies, affirming similar outcomes across different consumption taxes. The study’s insights are particularly relevant amid discussions on broader health-based taxes targeting products high in sugar, salt, or saturated fats. However, the report casts doubt on the efficacy of a wide-ranging health tax in steering consumption towards healthier choices, citing the lack of close substitutes for many products that would be affected.
The candy tax, implemented in Finland in 2011 for candies, ice creams, and sodas, was raised at the beginning of 2012 but was ultimately repealed at the start of 2017. Currently, only the soda tax remains, differentiating between sugary and sugar-free drinks. The study suggests that narrowly targeted consumption taxes, like the current soda tax, may influence dietary choices effectively, while broader taxes are less likely to yield significant health benefits due to the diversity of food products and the complexity of consumer behavior.
The findings challenge the notion that a broad health tax would significantly alter consumer habits towards healthier eating. Instead, the report recommends leveraging existing, neutral taxes, such as increasing the VAT on food, if the goal is to raise more tax revenue from food consumption without expecting a substantial shift in dietary habits.
This new research by VATT provides a nuanced analysis of the candy tax’s repeal in 2017, an international literature review, a survey on product substitutability, and a model framework. It offers valuable insights for policymakers to more accurately predict the impacts of various consumption taxes on public health and consumer behavior.
HT
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Source: www.helsinkitimes.fi
