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Becker and Posner on fat taxes

I have posted before on the questionable obesity tax (here, here, here) argument. Gary Becker and Richard Posner make similar points. Both both largely endorse my suggestions regarding soft-drink sales in schools (public schools in Victoria will ban such sales from the end of this year).

Becker. A tax on saturated fat would raise the price of fatty foods, and would reduce their consumption. The elasticity would be reasonably large for teenagers and low income families who have highest obesity and are more sensitive to prices. But there are doubts whether this is good public policy. Consumers get pleasure from high fat foods and good policies require that these pleasures are more than offset by strong negative public consequences. In addition, obesity is related to increased time spent at sedentary activities and reduced time spent exercising. For an analysis of the growth in weight of teenagers that concludes that increased sedentary activities is the culprit see the 2006 PhD thesis by Fernando Wilson, Economics Department, University of Chicago. There are also doubts about the medical evidence connecting excess weight and medical problems like cardiovascular diseases, diabetes, cancers and other serious diseases.

The consumption of fats may ‘crowds’ diets richer in fruits and vegetables. Then a more direct and powerful approach than taxing fat consumption would be to subsidize fruits and vegetables.

Is it irrational for teenagers and other young persons to ignore the recommendations of nutritionists and medical associations, and to consume diets heavy in fats and gain weight? Not if they recognize the trade off between present pleasures and future harms. In the next 20-30 years will probably bring improved medical knowledge and new drugs. Even inactive teenagers unaware of these medical trends will still benefit from these medical advances .

Yet even if medical progress slowed and heavy saturated fat consumption significantly raised the probability of contracting a major disease. Are public policy interventions justified? A common affirmative answer relies on the fact that overweight people who get serious diseases use health resources partly financed by taxpayers. This argument has merit. But the major flaw is in the design of the health system that could be corrected by providing stronger incentives to economize on health spending through encouraging health saving accounts, and requiring compulsory private catastrophic health insurance. These changes in the health delivery system would give individuals greater incentive to reduce their health spending by getting into better shape, eating better diets etc.

Even aside from this externality argument there is little reason for governments to intervene in eating decisions, with some important exceptions. The main ones might include policies to give greater publicity to the health advantages of better diets, and policies that kept unhealthy foods and possibly soft drinks out of school cafeterias and school dispensing machines.

Posner. Posner shares Becker’s skepticism about a fat tax though he supports a tax or ban on soft drinks. He also notes that if obesity is positively correlated with poverty, reducing transfer payments to people of limited income might result in more obesity.

Indeed high-caloric ‘junk food’ might turn out to be the first real example of a Giffen good, a good the demand for which rises when the price rises because the income effect dominates the substitution effect. A heavy tax on high-caloric food might so reduce the disposable income of the poor that they substituted such food for healthful food, since fatty foods tend to be very cheap and satisfying, and often nutritious as well. However, this is unlikely because food constitutes only a small percentage (<20%).

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