When the City of Philadelphia passed a tax on soda, juice, and other sweetened drinks in 2017, retailers responded predictably by raising their prices. 

But an economist at the Tippie College of Business found those price increases varied by neighborhood. David Frisvold, professor of economics, found the closer to city center you went, the higher the price.  

That year, the city approved a 1.5 cent per ounce tax on distributors that sold sweetened drinks, hoping to combat obesity by reducing consumption of the high calorie beverages. Frisvold found that prices rose generally in the city by 1.558 cents per ounce during the following year, which meant a 20-ounce bottle of soda on average cost about 31 cents more. 

But prices increased unevenly around the city. Stores near the border with adjacent cities where retailers sold untaxed soda at lower prices ate most of the tax to keep costs in line with competition. The greater the distance from the city line—even by just one-minute travel time—the greater the increase in price. To put this into perspective, a five-minute drive from untaxed competitors increased the price of a 20-ounce bottle by more than 7 cents.

Large grocery stores passed along only 80 percent of the tax, while gas stations passed along the full tax. 

National chain stores passed along less than the full tax, while locally-owned retailers passed along the full tax amount. Frisvold speculates that’s because chains subsidized the price increases in Philadelphia using revenue from other stores to keep prices competitive.

Retailers in poorer neighborhoods passed along more of the tax to consumers than retailers in wealthier neighborhoods.

The Philadelphia International Airport presented a particularly unique case. The airport straddles the city line—part of it is in Philadelphia, part is in the town of Tinicum, PA, which does not assess a soda tax. Retailers on the Philadelphia side of the terminal passed along the full tax to consumers, but retailers on the Tinicum side also raised their prices by the same amount, even though they were paying no additional tax.