Why sugary drink taxes aren’t effective – and how to change that

COLUMBUS, Ohio – Several U.S. cities have instituted taxes on drinks with added sugar in order to reduce consumption, but new research suggests these policies currently have one fatal flaw.

The study found that sugary drink taxes only reduce purchasing if price tags at stores mention that consumers are paying that tax when they buy the drink.

“If cities want these policies to be effective, they need to regulate how these sugary drinks are labeled at the stores where they are sold – and they currently don’t do that,” said Grant Donnelly, lead author of the study and assistant professor of marketing at The Ohio State University’s Fisher College of Business.

The findings suggest that price tags should mention the tax, but not the amount, because consumers tend to overestimate how much the tax is, Donnelly said.  If they know the true size of the tax, they are more willing to pay it.

Among the cities that currently have a tax on sugary drinks are Philadelphia, San Francisco, Seattle, and Boulder.

The study was published online recently in the journal Psychological Science.

The research included a field study at two convenience stores in San Francisco, which currently has a tax on sugary drinks of 1 cent per ounce – an added 12 cents to a 12-ounce drink.

Researchers varied the price tags placed on the sugary drinks over the eight-week study.  There were three price tags that were rotated: One that simply said the price for the 12-ounce drink ($1.52); one that had the price and the message “Includes SF Sugary Drink Tax”; and one that included the same message and added that the proceeds of the tax would support local university student programs.

All non-sugary drinks, which were not subject to the tax, simply had the price of the drink, which was $1.40.

The researchers compared sales of the drinks during the study period to the two immediately preceding weeks. During this time, the sugary drink tax was in effect, but there were no price tags on any drinks. They also compared sales to the two years preceding the tax.

Results showed that sales of sugary drinks were not lower during the two weeks before the study began, compared to sales in the two years before the tax. In other words, the tax itself did not reduce purchases of sugary drinks.

The researchers then looked at the effects of the three different price tags during the course of the study.

Results showed that the share of sugary drinks bought when the tags simply showed the price (47%) was not significantly different from the two-week period before the study.

But the share of sugary drinks purchased did decline slightly (45%) when the tags mentioned the price included the added tax.

Results showed that most consumers who chose to avoid sugary drinks with the added tax chose a drink that was not subject to the tax.

“Consumers are averse to taxes, so when they learn that their favorite drink has this sugary beverage tax, some are less interested in buying it,” Donnelly said.

“They generally substitute for healthier beverages, like bottled water. So the taxes do not seem to hurt the stores that sell drinks.”

Tags that noted where the taxes would be spent had no significant effect beyond the tags that simply noted the added tax.

In a separate online study, the researchers asked participants who drank sugary beverages to estimate what the tax would be on a 12-ounce can of their favorite beverage that cost $1.52.  The average estimate was 40 cents – much higher than the 12 cents actually levied in San Francisco.

Another study found that when consumers were told the tax was only 12 cents, they reported they were much more likely to still purchase the drink.

“People don’t like taxes, but they think this tax is much higher than it actually is,” Donnelly said. “If you tell consumers the true cost of the tax, it is no longer effective in reducing purchases.”

The bottom line, he said, is that if cities want these policies to be effective at reducing consumption of unhealthy beverages, they must mandate that tags mention the added tax – but not reveal how much it is.

Co-authors on the study were Paige Guge and Ryan Howell of San Francisco State University and Leslie John of Harvard University.

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