Introduction
Obesity has been a problematic issue not only in America, but also in other parts of the world including Europe, Mexico and also Canada. With a third of the American population being grossly obese, there is cause for alarm, and this is reflected in the ‘fat tax’ policy that is intended to reduce consumption of the foods that are primarily believed to exacerbate the problem. While this tax policy has been found to have some impact on the consumption levels, it can be argued that the desired effects are yet to be reached.
This paper supports the underlying arguments by the anonymous article that the proposed taxation policy has significant flaws that need a lot of rethinking. The article will be based on two economic points which prove that this tax is rather irrelevant and these are availability of perfect substitutes as well as price inelasticity.
Policy Efficacy
As explained in the article, there has been a significant increase in the number of people that are getting obese by day, mainly because of the population prevalence to junk food. There have also been quite a number of studies that have mostly linked junk food with the increased levels of obesity being witnessed especially in the West. Obesity has also been a very key cost for the government, especially with the health care cost sharing plan, Medicare which is leaving the whole burden of healthcare to the tax payer.
Various commentators have also provided significant evidence to show that there is a positive impact of levying the fat tax as it is likely to raise significant revenues to boost the government healthcare programs. They have also suggested that controlling the environmental weight influences as well as income levels would have an impact on the BMI. While this author appreciates these arguments, it’s not lost to economists that the efficacy of the proposed taxes in reducing obesity is a subject of debate.
Price Elasticity of Demand and Product Substitution
The assumption of policy makers at congress is that the ‘fat tax’ system and the related products are conventional. There is however significant studies that indicate that this will be the first and most significant undoing of this taxation policy (Statistic assessment service, 2013).
There are however quite some complications when it comes to levying this sort of tax. If congress taxes say, one item lumped up in the blanket of junk food, and then automatically consumers will move to the next cheaper option, since these products are perfect substitutes and this actually means that the tax has not met its objectives, and therefore it has not been successful. For instance, if the goal is to reduce sugar content in foods, and soda is taxed, it’s likely that consumers will move to take juice instead, which could probably have an even higher sugar content and therefore the focus is lost as well.
Levying blanket taxes such as taxing all items broadly, means that the consumers will have no option but to stick to their original brands, because there is no financial benefits of trying substitute products, and this means that it was pointless to levy the taxes in the first place, since consumption remains relatively unchanged (Alter and Eny 2007). If both burgers and pizzas are all taxed amongst other products in this category, then it means that the consumer of burgers will have no choice but to stick to his brand, since no other product is cheaper with regard to the imposed taxes.
Fig 1. Explains this phenomena
In the above graph, the steep demand line confirms that a large change in price is required to even bring a slight change in consumer demand; this is because for many consumers, fast foods are already a necessity and therefore they will consume it in the same quantity regardless of the changes in price.
Conclusion
This paper concurs with most of the assertions of the author, the point of divergence being the journal of public economics view that this tax can even contribute to obesity in that people will now spend more time cooking in their houses instead of exercising. This is a very remote cause and its impact on obesity cannot be objectively assessed. Obesity being a fundamental issue would be resolved if the government worked towards creating awareness on healthy eating, creating strong health policies as well as subsidizing the price of healthy foods to ensure people eat well.
References
Alter. and Eny. The relationship between the supply of fast food chains and Cardiovascular outcomes. Canadian Journal of Public Health 96(3): 173-177.2007
STATS. Will soda taxes curb obesity? Adapted from: http://www.stats.org/sodapage7.html, 2013.url
