Lit in Review: Taxes vs. Subsidies for Nutrition

Last week at our research group meeting, I discussed a future paper (maybe two) I'm working on trying to unite economists and nutritionists. I mentioned a nutritionist who had subsidized the price of healthy foods in school vending machines and discovered - to my non-surprise - that students consumed more healthy foods. Demand curves are downward sloping? Good. I asked her if she also had data on what happened to unhealthy food consumption. No, she didn't. I demonstrated that the problem was that students might have taken the money saved on healthy foods and bought more junk food. Oh. That would've been good to know, yeah.

Well, here's a group who did it right: two psychologists, an epidemiologist, and a health economist: Leonard H. Epstein, Kelly K. Dearing, Lora G. Roba, Eric Finkelstein. The Influence of Taxes and Subsidies on Energy Purchased in an Experimental Purchasing Study. Psychological Science, 2010; DOI: 10.1177/0956797610361446

They had mothers do some virtual shopping using real prices from a nearby grocery store. On subsequent visits, they imposed 12.5 or 25% taxes on unhealthy foods (lots of calories for few nutrients) or 12.5 or 25% subsidies on healthy foods. What did they find?

I don't have access to full the paper at home, but the summary is that taxes reduced calorie consumption and improved nutrient intake while subsidies increased calories without improving nutrition.

Why? Economics, my dear Watson! In this case, income and substitution effects:

It appears that mothers took the money they saved on subsidized fruits and vegetables and treated the family to less healthy alternatives, such as chips and soda pop. Taxes had basically the opposite effect, shifting spending from less healthy to healthier choices.

Hat tip: MR and Farnam Street