Shoppers who oppose a certain tax may reduce their consumption of that good compared to consumers who supported that tax.
A new study, conducted by researchers at Johns Hopkins Carey Business School and University of Toronto Rotman School of Management, found that shoppers who opposed soda taxes reduced their consumption of soda by significantly more than those who supported the taxes. Published by the journal Marketing Science, the study examined a short-lived 2010 soda tax in Washington state and is the first study to show that opposition to a tax can change consumption behavior.
Key Takeaways
- The effectiveness of consumption taxes really depends on how much support there is for that tax.
- Policymakers may want to consider conducting polling and laboratory experiments to estimate how different groups would react to a potential tax.
The soda tax that was studied, which was repealed by voters after only five months, was implemented to help close Washington state's budget deficit. The researchers used a unique data set that combines precinct-level voting data with store-level sales data from NielsenIQ to track soda sales before, during, and after the tax was in effect.
"When opposition is strong, you may very well find that a consumption tax will raise much less tax than what you expected," said Andrew Ching, co-author of the study and professor of marketing and economics at the Carey Business School.
The researchers found that stores frequented by shoppers who opposed the tax experienced a 53% greater reduction in soda sales than stores frequented by shoppers who supported the tax. The study also found that tax pass-through was uniform across all stores, meaning that shoppers at both types of stores faced the same price increase.
The finding is considered evidence of a "rebellious" behavioral response: Shoppers who opposed the tax may have decreased their consumption to avoid contributing to the tax revenue that they disagreed with. The study also notes that the findings have important implications for policymakers who are considering implementing soda taxes.
The research suggests that if policymakers do not account for the behavioral response of tax opponents, they may set the optimal tax rate too high, resulting in lower tax revenue. Policymakers may want to consider conducting polling and laboratory experiments to estimate public support and how different groups would react to a potential tax.
"The lesson we learn here could have implications about the tariff proposed by the new Trump administration," said Ching. "For consumers who oppose Trump, they may want to give less tariff revenue to the federal government. As a result, they may reduce their demand more than Trump's supporters. Ironically, such responses would hurt import even more, and give more reasons for manufacturers to open factories in the U.S."
