Cost of obesity and a Pigouvian tax on obesity

David Leonhardt has a nice post in Economix, which points out that in the US, the prices of many unhealthy foods like soda, butter and beer have declined in real terms over the past three decades, whereas that of healthier vegetables and fruits have risen substantially.



The Rand Corporation, using their Future Elderly Model, has estimated that obesity costs the US federal government $40 bn every year.

As the obesity challenge becomes ever more serious, the calls for Pigouvian obesity taxes - sugar-sweetened beverage excise tax, soda tax etc - have mounted. Kelly Bronwell and Thomas Frieden have studied the harmful effects of consumption of sugared beverages and the price sensitive nature of soda consumers, and have proposed a soda tax.

Proponents of such taxes argue that it will both disincentivize activities and products causing obesity and generate revenues to cover costs incurred by the government due to obesity.

On a contrarian note, I had posted earlier about how exorbitantly higher taxes, esecially on alcohol and tobacco, ends up increasing crime rates.

Update 1 (28/9/2010)

Study finds obesity is contagious.

Update 2 (7/10/2011)

Freakonomics reports that Denmark became the first country to impose a nationwide fat tax. From now on, foods in Denmark with saturated fat content above 2.3% will be taxed 16 Danish kroner ($2.87) per kilogram of saturated fat; which works out to a tax of about $1.28 per pound of saturated fat.