Pierre Dubois (Toulouse School of Economics)

The effects of sin taxes and advertising restrictions in a dynamic equilibrium

Abstract: Taxes to reduce the consumption of sugar-sweetened beverages have been implemented by many jurisdictions, and restrictions on advertising are increasingly being considered. This column studies the dynamics of a ‘soda tax’ and brand-level advertising in the UK. Consumers that are particularly sensitive to price also tend to be more sensitive to advertising. A soda tax leads the most advertising-sensitive consumers to switch away from taxed brands and reduces firms’ incentives to advertise the taxed products. An advertising restriction on its own will have a relatively small impact on total sugar consumption from drinks.