Monday, June 07, 2010

A Bit More on the Soda Tax

David Leonhardt comments on my soda tax article, and he pushes the case for the tax on the grounds of budgetary externalities.

I have not seen the article in Health Affairs that he cites, but I wonder if it nets out the appropriate budgetary savings from shorter lifespans.  When writing my article, I contacted several prominent health economists to ask whether a complete accounting of both budgetary costs and benefits has been done for obesity, as has been done for smoking.  A typical response was the following:
"I don't know of anything on obesity. Good topic for an econ or health policy doctoral student!"
Another said,
"My impression is that the net effects are relatively small, all things considered."
He added,
"Two factors make the obesity case stronger, however. One is that we subsidize agriculture a lot, and one could view the soda tax as an offset to that (of course, it would be better just to get rid of the subsidies, but let's stick to what is feasible). Second, there are internalities associated with people not being able to do what they would like. As in smoking, these would be huge."
I agree that the agricultural subsidies should go. (I did not address this issue in my column, but I doubt anyone would be surprised about my views on it.) I did address the second argument. When he says "internalities," he means the externalities that impinge on one's future self. As I said in my column, this is, I believe, the key issue at stake in this debate.

Updates: A reader alerts me to this study, which concludes:.
Although effective obesity prevention leads to a decrease in costs of obesity-related diseases, this decrease is offset by cost increases due to diseases unrelated to obesity in life-years gained. Obesity prevention may be an important and cost-effective way of improving public health, but it is not a cure for increasing health expenditures.
Add savings on pension costs such as Social Security into the mix and the argument against obesity-related budgetary externalities seems even stronger.  Tim Worstall reaches a similar conclusion.

Note also that the impact of obesity on the cost of insurance may not be an externality: Some work suggests that the obese bear that cost themselves in the form of lower wages.