tops of pop cans with tabs
Wednesday, January 17, 2018
Tom Snee

Local governments across the country are turning to soda taxes in an effort to improve public health by discouraging consumption of the sugary drinks.

A new study from a University of Iowa researcher published in the current issue of the Journal of the American Medical Association (JAMA) finds that in one city, soda distributors are passing that cost along to consumers.

The study looked at how vendors at the Philadelphia International Airport accommodated the tax, which the city of Philadelphia implemented on Jan. 1, 2017. The airport is unique because it straddles a city boundary between Philadelphia—which assesses a soda tax—and the adjacent town of Tinicum, Pennsylvania—which doesn’t.

A research team that included David Frisvold, associate professor of economics in the Tippie College of Business, wanted to find out how much of the 1.5 cents per ounce tax was passed along to consumers on each side of the border.

It turns out, almost all of it, as stores had raised their soda prices by 93 percent of the tax by Feb. 5 on the Philadelphia side of the airport. That was a significantly larger share of the tax passed along to consumers than in other communities with similar taxes. In Berkeley, California, for instance, merchants passed on only 43 to 69 percent to consumers and ate the rest in the form of lower profits.

Interestingly, merchants on the Tinicum side of the airport also raised their soda prices by almost as much as vendors on the Philadelphia side, so consumers were paying the tax even though it was not being assessed.

Frisvold’s study, “Pass-through of a tax on sugar-sweetened beverages at the Philadelphia International Airport,” was co-authored by John Cawley, professor of economics at Cornell University, and Barton Willage, a Cornell doctoral candidate. The study is published in the current issue of JAMA.