Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2010:11: Can targeted food taxes and subsidies improve the diet? Distributional effects among income groups

Jonas Nordström () and Linda Thunström ()
Additional contact information
Jonas Nordström: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Linda Thunström: The Swedish Retail Institute, Postal: 103 29 Stockholm, Sweden

Abstract: This paper analyses distributional effects of revenue-neutral tax reforms aimed at improving dietary quality and encouraging healthier grain consumption. Using data on household grain purchases, we analyse both the impact on dietary quality and the tax incidence among income groups of VAT reforms and excise duty reforms. The VAT reforms include subsidies of healthy products (products labelled with the Swedish National Food Administration’s healthy symbol) funded by increased VAT on ‘less healthy’ products. The excise duty reforms contain a subsidy of fibre content, funded by excise duties on either added sugar or saturated fat. Our results suggest that the VAT reforms have a similar impact on dietary quality across all income groups, with increases in fibre intake, but also unwanted increases in the intake of nutrients frequently overconsumed: fat, salt and sugar. The impact on dietary quality of the VAT reforms is therefore difficult to evaluate. With the exception of the lowest income group, the excise duty reforms seem to have a positive health effect across all other income groups, with increases in the intake of fibre and reductions in the intake of saturated fat, sugar and added sugar. For the lowest income group we find the highest increase in the intake of fibre, but generally an increase in the intake of the other nutrients, too. The excise duty reforms also result in a more energy dense grain diet, with increases in the intake of calories for all income groups. Both the VAT reforms and the excise duty reforms appear to be progressive. The lowest income group pays less food taxes and generally faces a lower overall post-reform price level. The income group that increases its tax payments most is the one with the highest income. This is also the income group that faces the largest increase in the overall post-reform price level.

Keywords: food; health; taxation; income groups; incidence; consumer economics

JEL-codes: D12; H22; I12; Q18

38 pages, September 13, 2010

Note: Appendix available

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