Effects of Sweetened Beverage Taxes in Philadelphia and Oakland

Consumption did not decline significantly overall in Philadelphia or Oakland, but adult consumption of regular soda declined in both cities, and children in Philadelphia who were high consumers of added sugars from drinks saw a reduction.

Almost a year after Philadelphia and Oakland implemented taxes on sweetened beverages, purchases of sweetened beverages declined, but evidence also suggests that some city residents shopped more outside of the cities. Consumption did not decline significantly overall in Philadelphia or Oakland, but there is more evidence of reduced consumption in Philadelphia, particularly among certain groups.

With funding from the Robert Wood Johnson Foundation, researchers from Mathematica, the University of Iowa, and Cornell University collected and analyzed data from the periods shortly before and 11 months after beverage taxes went into effect in Oakland and Philadelphia.

A new Mathematica issue brief released this week synthesizes new and recent evidence on how the two cities’ beverage taxes affected purchases, consumption, and the retail environment. It also reports new findings from consumer receipt data of beverage purchases in Oakland, Philadelphia, San Francisco, and Seattle.

The multi-city study adds to the emerging body of evidence on local soda taxes in the United States, where seven U.S. cities have adopted taxes on sweetened beverages, starting with Berkeley, California, in 2015. Critically, the study provides the first-ever evidence of whether beverage taxes’ affect children’s beverage consumption. The study also provides the first impact estimates of Oakland’s beverage tax.

Key takeaways on purchases:

  • Based on store-exit interviews, the Philadelphia tax reduced purchases of taxed beverages relative to stores in comparison areas by about 9 ounces per shopping trip, or roughly two 2-liter bottles per month. The Oakland tax had no detectable impact on purchases.
  • Cross-border shopping in nearby jurisdictions without the tax offset at least some of the potential impact on purchases in Philadelphia and Oakland. To be clear, residents of Philadelphia and Oakland were not more likely to cross-border shop after the tax. However, those who were already shopping outside the city became more likely to buy beverages in neighboring areas or to buy more of them in those neighboring areas.
  • The vast majority of retailers interviewed in both cities (15 of 17 in Philadelphia and 10 of 14 in Oakland) reported that the beverage tax lowered their sales of taxed beverages.
  • Customer receipt data also shows that the combined effect of the taxes in Philadelphia, Oakland, Seattle, and San Francisco reduced household purchases of taxed beverages, but the reduction was concentrated in Philadelphia.

Key takeaways on consumption:

  • The beverage taxes had no detectable impact on the frequency of drinking taxed beverages overall for children in either Philadelphia or Oakland.
  • However, children in Philadelphia who were high consumers of sugar-sweetened beverages before the tax experienced a 22 percent reduction in their consumption of added sugars from beverages – equal to 15 fewer grams per day.
  • Although the study found declines in adults’ consumption of added sugars, measured in grams per day, from sugar-sweetened beverages in both cities (5.9 fewer grams in Philadelphia and 3.1 fewer grams in Oakland), neither decline was statistically significant.
  • The taxes did result in detectable declines in adults’ consumption of a specific type of taxed beverage: regular soda. Philadelphia’s tax decreased how often adults consumed regular soda by about 10 times per month, equal to about a 30 percent reduction. Oakland’s tax reduced the probability that an adult consumed any regular soda by 7 percentage points, equal to about a 9 percent reduction.

Key takeaways on retailers’ responses:

  • In both cities, distributors and retailers passed most of the tax onto consumers, though the pass-through rate in Philadelphia was substantially higher (105 percent) than in Oakland (61 percent).
  • Because of the higher pass-through rate in Philadelphia, the tax increased the average price of taxed beverages by 21 percent in Philadelphia, compared with only 8 percent in Oakland.
  • Retailers in both cities reported reducing the availability of taxed beverages in their stores.
  • Retailers also reported posting signs notifying shoppers about the tax, increas­ing the prominence of untaxed beverages in the store, and adjusting the advertising outside their store to promote untaxed beverages more and the taxed beverages less.

The study sheds light on how differences in the design of a city’s beverage tax and the setting in which the tax is implemented can affect consumers’ and retailers’ responses. For example, the taxes in Oakland and Philadelphia differ in the types of beverages covered and the size of the tax. Philadelphia taxes a broader range of beverages, including artificially sweetened beverages, and at a higher rate (1.5 cents per ounce, compared with Oakland’s 1.0 cents per ounce). The higher tax rate in Philadelphia and resulting higher after-tax prices (relative to Oakland) could help explain the stronger evidence of a decline in consumption and purchases in Philadelphia.

The authors recommend that future studies on beverage taxes examine how differences in policy design and local contextual differences affect consumer choices and the tax’s ultimate impact. These factors include the size of the tax, type of beverages taxed, presence of beverage taxes in neighboring jurisdictions, and availability of untaxed beverages sold in nearby communities.

The findings discussed in this week’s issue brief also appear in the following working papers, issue brief, and journal articles:

Cawley, John, David E. Frisvold, and David Jones. “The Impact of Sugar-Sweetened Beverage Taxes on Purchases: Evidence from Four City-Level Taxes in the U.S.” Cambridge, MA: National Bureau of Economic Research Working Paper #26393, October 2019.

Holdbrook, Jeanette, Dana Petersen, David Jones, and David Frisvold. “How Retailers Responded to Taxes on Sweetened Beverages: A Tale of Two Cities.” Cambridge, MA: Mathematica, September 2019.

Cawley, John, David E. Frisvold, Anna Hill, and David Jones. “Oakland’s Sugar-Sweetened Beverage Tax: Impacts on Prices, Purchases and Consumption by Adults and Children.” Cambridge, MA: National Bureau of Economic Research, September 2019.

Cawley, J., D. Frisvold, A. Hill, and D. Jones. “The Impact of the Philadelphia Beverage Tax on Purchases and Consumption by Adults and Children.” The Journal of Health Economics, vol. 67, September 2019.

Cawley, John, David E. Frisvold, Anna Hill, and David Jones. “The Impact of the Philadelphia Beverage Tax on Prices and Product Availability.” Journal of Policy Analysis & Management, forthcoming.

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