Associations of a National Tax on Non-Essential High Calorie Foods with Changes in Consumer Prices

Several governments are considering taxes on non-essential energy-dense, high calorie foods (NEDF) to increase their prices and thereby encourage better diet and health. Alongside a tax on sugary drinks in January 2014, Mexico implemented such a tax: an 8 percent ad-valorem tax on NEDF, defined as those with energy density equal or larger than 275 kcal/100g. We study the changes in the prices of taxed and tax-exempt foods following this tax both on average and by tax-eligible foods across store types and cities, using monthly price data between 2012 and 2016. We compare within-product price changes before and after the tax adjusting for product fixed effects, seasonality, and trends, and find that prices of taxed foods increased by 4.8 % on average, but differentially across foods. Prices of candies, cookies and packaged pastries increased by eight or more percent post-tax (vs pre-tax); prices of cakes, and savory snacks increased by less. Prices of fresh pastry and ready-to-eat cereal increased, but only in 2014. Prices of chocolate and pizza did not increase after the tax. For tax-exempt foods, no significant price changes were observed. Variability in price changes for taxed foods were observed by cities as well as by stores: increases were larger in supermarkets compared to smaller grocery stores on average and for most foods. Differences in how prices changed across foods, cities and stores have implications for who is likely to be affected by the tax and how tax effects on diet may vary due to the differential tax pass-through in addition to a heterogeneous demand response to changed prices.