Economics @ ITT

Soda Tax: Good or Bad?

Posted in economics, externalities, microeconomics, Policy Issues by ittecon on December 14, 2010

An MSNBC article on the effects of a soda tax demonstrates how little journalists and the general public understand about public policy and addressing externalities, a form of market failure. It is interesting that this health writer sees the benefits of how the additional revenue is spent as a “secondary effect.” Presumably, the effects on obesity are the primary goal. The larger issue here is not that soda contains empty calories, but it is responsible for myriad otther heath and dental problems. That low income people consume a larger part of their budget on soda is a red herring. In fact, drinking tap water is a far more economical way to hydrate. Soda contains mostly water. If drinking water instead of soda people  could use the savings to support a more healthly diet, the benefits would be magnified that much more. Of course, how the saved money is spent is another issue all together.

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