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Taxes on unhealthy food and externalities in the parental choice of children's diet

by Zarko Kalamov and Marco Runkel

(T.U. Berlin)



"Darling, I fattened the kids - How can we correct externalities in the parental choice of children's diet?"


Childhood obesity is widespread in many countries. In the OECD, the prevalence of obesity among children is 15.5% (OECD, 2017). Biener et al. (2020) estimate that child obesity in the US raises the annual medical costs of a child by $907. Furthermore, child obesity is associated with adult obesity (Freedman et al., 2003) and multiple morbidities in adulthood (Biro and Wien, 2010).

Theoretical studies on the taxation of unhealthy food usually focus on the effects of these taxes on adult obesity (see Allcott et al. (2019) for an overview of the literature). An exception is the study by Goulão and Pérez-Barahona (2014), which analyzes the impact of such taxes on the intergenerational transmission of obesity from parents to children. In the model of Goulão and Pérez-Barahona (2014), parents are nonaltruistic and neglect the impact of their own choices on the future health of their children. They find that there is a tax on unhealthy food that fully corrects for the negative effects that parents ignore, thus leading to a first-best situation.

In this paper, Zarko Kalamov and Marco Runkel develop a different theoretical framework to analyze how a tax on unhealthy food can be applied to address child obesity. They analyze a situation where parents may only partially neglect the future health costs of unhealthy consumption by their children.

The paper shows that it is optimal for a government to tax unhealthy food, even if parents ignore only a small part of the future health costs of their children. However, the optimal tax cannot, in general, fully correct the ignored costs. The reason is that the tax also distorts adult consumption, as well as consumption of children with fully altruistic parents.

These results show that taxing unhealthy food is insufficient to fully address the problem of child obesity. Other measures targeting child consumption should be implemented in conjunction with taxes. Such measures may include subsidies for childhood sports activities, providing information about the negative effects of child obesity, introducing mandatory product information in supermarkets, and using nudges to promote healthy consumption in schools.  


The full paper “Taxes on Unhealthy Food and Externalities in the Parental Choice of Children’s Diet” is published in Health Economics.

This text is jointly published by BCCP News and BSE Insights.


References

Allcott, H., Lockwood, B. B. and D. Taubinsky (2019b), Should we tax sugar-sweetened beverages? An overview of theory and evidence, Journal of Economic Perspectives, 33(3): 202-227.

Biener, A. I., Cawley, J. and C. Meyerhofer (2020), The medical care costs of obesity and severe obesity in youth: An instrumental variables approach, Health Economics, 29(5): 624-639.

Biro, F. M. and M. Wien (2010), Childhood obesity and adult morbities, American Journal of  Clinial Nutrition, 91: 1499S-1505S.

Freedman, D.S., Khan, L., Serdula, M., Dietz, W., Srinivasan, S. and G. Berenson (2003), The relation of menarcheal age to obesity in childhood and adulthood: the Bogalusa heart study, BMC Pediatrics, 3:3.

Goulão, C. and A. Pérez-Barahona (2014), Intergenerational Transmission of Noncommunicable Chronic Diseases, Journal of Public Economic Theory, 16(3): 467-490.

Kalamov, Z. Y. and M. Runkel (2020), Taxes on unhealthy food and externalities in the parental choice of children’s diet, Health Economics, 29(8): 938-944.

OECD (2017), Obesity Update 2017, https://www.oecd.org/els/health-systems/Obesity-Update- 2017.pdf.


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