Taxes on sugary drinks

Big Soda Faces Test in Philadelphia

by: Mike Esterl
May 20, 2016
Click here to view the full article on WSJ.com

TOPICS: Taxation

SUMMARY: The U.S. soda industry faces its biggest threat yet in Philadelphia, which is weighing a tax that could raise the price of a can of Coke or Pepsi by more than half and sharply curb consumption of sugary drinks.

CLASSROOM APPLICATION: Students can learn about the rationale for Philadelphia's proposed tax on sugary drinks. They can also evaluate the effect of the tax on the price of sugary drinks in the city, consider whether the tax would be regressive, and also whether the tax would have positive health benefits.

QUESTIONS: 
1. (Advanced) How does the effect of the tax on the price of soda depend on the price elasticities of supply and demand for soda? Would the tax result in people substituting away from sugary drinks and toward other sugary products?

2. (Advanced) Would a city tax on sugary drinks create a black market for soda in Philadelphia?

3. (Introductory) What is Philadelphia Mayor Jim Kenney's rationale for proposing the tax on sugary drinks?

4. (Introductory) Would a Philadelphia tax on sugary drinks be regressive?

Here are some money quotes.

1. "Philadelphia ... is weighing a tax that could raise the price of a can of Coke or Pepsi by more than half ...The beverage industry estimates Philadelphia’s consumption would fall by 79% in the first year and the mayor’s office estimates a 55% drop, if fully passed on to consumers."
2. "'I sense Americans generally and I know Philadelphians don’t like the government telling them what they should and should not do'".