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Abstract

The obesity epidemic and excessive consumption of sugary beverages has led to proposals of economics-based interventions to promote healthy eating. We quantify the differential effects of taxing sugar-sweetened beverages by calories and by ounce on consumer demand, using a fully modified distance metric model of differentiated product demand that endogenizes the representation of group and rival product prices. The novel demand model outperformed the conventional distance metric model in both goodness-of-fit and economic significance of model predictions. A calorie-based beverage tax was estimated to cost $0.29 less in consumer’s surplus per 1,000 beverage calories reduced than an ounce-based tax.

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