1-1 Master Thesis – Final Thesis, submitted 23rd May 2017
Should Sweden impose excise tax on sugar-sweetened beverages in order to improve public health?
By Johan Edfeldt and Linn Petersson Edfeldt
Blekinge Institute of Technology, BTH, School of Management Tutor: Shahiduzzaman Quoreshi
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Abstract
In recent time, several reports have been published about a more and more unhealthy population world wide, with increasing Body Mass Index (BMI) in welfare countries, such as Sweden. Diseases, such as obesity and diabetes, which is strongly connected to a high BMI, have increased and together with them also the medical expenses for society/state. Several initiatives have been started, in different countries, to tackle these problems and some have introduced a “sugar tax” on unhealthy products, like candy and soda, which has become a well- debated subject also in Sweden today.
In this MBA master thesis, a literature study has been conducted with the goal of evaluating if an excise tax should be introduced in an efficient way on unhealthy sugar-sweetened beverages in Sweden. This case study is built on secondary data where reports and official statistics, from governments and health authorities/organizations, have been studied both for Sweden as well as from other countries. There has been a particular focus on Sweden's neighbouring countries Denmark and Finland, who has both experiences in the implementation of a “sugar tax”. Our theory is that introducing an excise tax on sugar-sweetened beverages will reduce the demand and consumption of these products, which will reduce welfare disease such as obesity and diabetes and yield a tax income for the state. However it is important to have in mind that the reduced consumption also will result in less tax income from the no longer sold goods, fewer personnel employed in the producing industries etc.
The results showed that the overall sugar consumption actually has decreased in Sweden, as well as the overall consumption of sugar-sweetened beverages.
However during the same time period the average calorie consumption and BMI has continued to increase resulting in a more unhealthy population that results in increased medical expenses.
In conclusion an excise tax on sugar-sweetened beverages will not solve the welfare disease problems but may positively influence health. However it comes with a price also for the state from both gains and loss in tax incomes and increased administrations costs for managing the new tax. Finally it should be noted that since sugar-sweetened beverages are unhealthy products, which do not contribute to any positive health effects, sugar taxation might still be considered.
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Table of contents
Abstract ... 1-2 Table of contents ... 1-3 List of figures ... 1-6 List of tables ... 1-6 List of equations ... 1-7 1 Introduction ... 1-8 1.1 Background on sugar tax ... 1-8 1.2 Problem discussion ... 1-8 1.3 Problem formulation and purpose ... 1-10 1.4 De-limitations ... 1-11 1.4.1 Sugar-sweetened beverages tax not unhealthy food tax ... 1-12 1.4.2 Physical activity ... 1-12 1.4.3 Tax system and health care system in Sweden ... 1-13 1.5 Thesis’ structure ... 1-13 2 Background on sugar ... 2-14 2.1 Sugar definition ... 2-14 2.2 Sugar’s effect on human body ... 2-14 2.3 Sugar-sweetened beverages ... 2-15 2.4 Artificial sweetened beverages ... 2-15 2.5 Body mass index (BMI) ... 2-16 2.6 Definition of calories in connection to food and empty calories ... 2-17 2.6.1 Calories in connection to food ... 2-17 2.6.2 Energy requirement / energy balance ... 2-17 2.6.3 Calories in relation to nutrients ... 2-18 2.7 Energy requirement ... 2-18 2.8 Energy percentage (E %) and example meal ... 2-19 2.9 Empty calories ... 2-20 2.10 Glycemic index and Glycemic load ... 2-20 2.10.1 Glycemic Index (GI) ... 2-20 2.10.2 GI-values found in tables ... 2-21 2.10.3 Glycemic Load (GL) ... 2-21 2.11 Sugar and correlation with welfare diseases ... 2-22 3 Theory ... 3-23 3.1 Taxing sugar ... 3-23 3.1.1 Cost for overweight and obesity ... 3-24 3.2 Supply and demand curve effects by excise tax and tax design ... 3-25 3.2.1 Tax design ... 3-25 3.2.2 Tax implication on supply and demand curve ... 3-28 3.2.3 Externalities ... 3-29
1-4 3.3 Price elasticity of demand ... 3-31 3.3.1 Elasticity of demand in relation to sugar-sweetened beverages ... 3-32 3.3.2 Elasticity of demand over time ... 3-32 3.4 The usage of sugar tax in different countries today ... 3-33 3.4.1 Denmark ... 3-33 3.4.2 Finland ... 3-34 3.4.3 The United Kingdom (UK) ... 3-34 3.4.4 France ... 3-35 3.4.5 USA ... 3-35 4 Method ... 4-37 4.1 Case methodology ... 4-38 4.1.1 Descriptive and exploratory case methodology through sub-set questions ... 4-39 4.2 Data ... 4-41 4.2.1 Overall data comment ... 4-43 4.2.2 Data bias ... 4-43 5 Results ... 5-44 5.1 BMI and calorie consumption ... 5-44 5.2 Soda and mineral water sales increasing ... 5-46 5.3 Soda consumption constant to slightly decreasing ... 5-46 5.4 Energy drink consumption increasing rapidly ... 5-46 5.5 Calorie and sugar consumption in Nordic countries, UK and USA ... 5-46 5.6 Replacing sugar-sweetened beverages with energy drink, nutrition- and cost impact ... 5-47 5.7 Additional value of imposed excise tax in Sweden ... 5-48 5.7.1 Consumer quantity tax in kronor (SEK)/litre taxation revenue scenarios ... 5-48 5.7.2 Producer ad valorem tax in kronor (SEK)/sales taxation revenue scenarios ... 5-52 5.8 Administrative cost for an excise tax ... 5-54 5.9 Healthcare costs due to welfare diseases ... 5-55 6 Analysis ... 6-56 6.1 BMI and calorie consumption ... 6-56 6.2 Public health impact ... 6-57 6.3 Increase in sugar-sweetened beverages sales with slight decreasing consumption
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6.4 Tax design ... 6-58 6.5 Tax levels ... 6-58 6.6 Financial implication of excise tax on sugar-sweetened beverages in Sweden .. 6-58 6.7 BMI, calorie consumption and sugar consumption ... 6-59 6.8 Taxation on energy drinks ... 6-59 6.9 Taxation on artificially sweetened beverages ... 6-59 7 Conclusion and implications ... 7-61 7.1 Tax design ... 7-61 7.2 Taxation on the artificially sweetened beverages ... 7-62 7.3 Data validity ... 7-62
1-5 7.4 Glycemic index (GI) ... 7-62 7.5 How much could/should good health cost? ... 7-63 7.6 Future studies ... 7-63 8 Reference list ... 8-64 8.1 Articles ... 8-64 8.2 Reports ... 8-66 8.3 Literature ... 8-66 8.4 Electronic ... 8-67 9 Appendix ... 9-70 9.1 Appendix A – Macro data on historic obesity development ... 9-70 9.1.1 Macro data on historic obesity development in the Nordic countries ... 9-70 9.2 APPENDIX B – Soda- & Mineral water sales in Sweden ... 9-71 9.3 APPENDIX C – Carbonated and non-carbonated soda consumption ... 9-72 9.4 APPENDIX D – Calorie and sugar consumption in Nordic countries, UK and USA .. 9- 74
9.4.1 Calorie consumption in Nordic countries, UK and USA ... 9-74 9.4.2 Sugar consumption in Nordic countries, UK and USA ... 9-75 9.5 APPENDIX E - Nutritional value in sugar-sweetened beverages compared to energy drinks ... 9-76
9.6 APPENDIX F - Glycemic Index (GI) on sugar-sweetened beverages and energy
drinks ... 9-77 9.7 APPENDIX G – Input tables for calorie and sugar consumption graphs ... 9-78
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List of figures
FIGURE 1 - EXTRA ADDITIONAL YEARLY HOSPITAL COSTS IN SEK (LIGHT GRAY), DEFINED AS THE DIFFERENCE BETWEEN AVERAGE MEDICAL CARE BETWEEN OVERWEIGHT AND NORMAL WEIGHT AND OBESE AND NORMAL WEIGHT FOR
SWEDEN IN YEAR 2003. SOURCE: PERSSON AND ÖDEGAARD, 2005. ... 3-25
FIGURE 2 - THE IMPOSITION OF A TAX, SHIFT OF DEMAND CURVE DOWN OR SHIFT SUPPLY CURVE UP. THE EQUILIBRIUM PRICES RECEIVED BY SUPPLIERS AND PAID BY DEMANDERS WILL BE THE SAME REGARDLESS. ... 3-28
FIGURE 3 - THE DEADWEIGHT LOSS OF A TAX. AREAS B AND D MEASURE THE DEADWEIGHT LOSS OF THE TAX. ... 3-29
FIGURE 4 – NEGATIVE CONSUMPTION EXTERNALITY ... 3-31
FIGURE 5 - CALORIE CONSUMPTION IN NORDIC COUNTRIES, UNITED KINGDOM AND UNITED STATES FROM 1961 TO 2011.
OECD STAT (2017) ... 9-74
FIGURE 6 - SUGAR CONSUMPTION IN NORDIC COUNTRIES, UNITED KINGDOM AND UNITED STATES FROM 1961 TO 2011.
OECD STAT (2017) ... 9-75
FIGURE 7 - SUGAR CONSUMPTION IN DENMARK ... 9-82
List of tables
TABLE 1 - BMI RANGES AND DEFINITIONS ... 2-16
TABLE 2 - CALORIES PER FOOD NUTRIENT ... 2-18
TABLE 3 - ENERGY INTAKE FOR ADULTS IN NORDIC COUNTRIES BASED ON PHYSICAL ACTIVITY LEVELS ... 2-19
TABLE 4 - AVERAGE ENERGY INTAKE FOR ADULTS IN NORDIC COUNTRIES BASED ON PHYSICAL ACTIVITY LEVELS ... 2-19
TABLE 5 - ENERGY PERCENTAGE (E %) FOR AN EXAMPLE MEAL ... 2-20
TABLE 6 - PERCENTAGE (%) EXTRA CALORIES CONSUMED COMPARED TO AVERAGE REQUIREMENTS. ... 5-45
TABLE 7 – PERCENTAGE (%) EXTRA CALORIES CONSUMED COMPARED TO AVERAGE REQUIRES WITH ALL SUGAR
CONSUMPTION REMOVED. ... 5-46
TABLE 8 - RESULTS FROM CALCULATION ON CONSUMER QUANTITY TAX IN SWEDEN ... 5-49
TABLE 9 - SCENARIO ANALYSIS FOR CONSUMER QUANTITY TAX IN SWEDEN ... 5-49
TABLE 10 - WEIGHTED AVERAGE PRICE PER LITRE OF SUGAR-SWEETENED BEVERAGE AS INPUT TO ESTIMATED LOST VAT REVENUE ... 5-50
TABLE 11 - LOST VAT REVENUE ON REDUCED SALES DUE TO IMPOSED EXCISE TAX, BASE CASE ... 5-51
TABLE 12 - SCENARIO ANALYSIS FOR CONSUMER QUANTITY TAX IN SWEDEN WITH VAT LOSS TAKEN INTO ACCOUNT ... 5-51
TABLE 13 - RESULTS FROM CALCULATION ON PRODUCER AD VALOREM TAX IN SWEDEN ... 5-52
TABLE 14 - SCENARIO ANALYSIS FOR PRODUCER AD VALOREM TAX IN SWEDEN ... 5-53
TABLE 15 - LOST VAT REVENUE ON REDUCED SALES DUE TO IMPOSED EXCISE TAX ... 5-53
TABLE 16 - SCENARIO ANALYSIS FOR PRODUCER AD VALOREM TAX IN SWEDEN WITH VAT LOSS TAKEN INTO ACCOUNT . 5-53
TABLE 17 - SCENARIO ANALYSIS FOR CONSUMER QUANTITY TAX IN SWEDEN WITH VAT LOSS AND ADMINISTRATION COST TAKEN INTO ACCOUNT ... 5-54
TABLE 18 - SCENARIO ANALYSIS FOR AD VALOREM TAX IN SWEDEN WITH VAT LOSS AND ADMINISTRATION COST TAKEN INTO ACCOUNT ... 5-54
TABLE 19 - HEALTH CARE COSTS DIRECT AND INDIRECT CAUSED BY WELL FARE DISEASES IN 2011 AND 2015 PRICES, NOTE THAT 2011 PRICES HAVE BEEN INFLATED WITH 2 % PER YEAR. ... 5-55
TABLE 20 - BMI, CALORIE CONSUMPTION, SUGAR CONSUMPTION FROM 1980 – 2015 IN SWEDEN. ... 9-70
TABLE 21 - SODA- & MINERAL WATER SALES IN SWEDEN FROM 2000-2015 IN FIXED PRICES BASED ON YEAR 2000, IN MILLION SEK (SCB, 2017) ... 9-71
TABLE 22 - CARBONATED AND NON-CARBONATED SODA CONSUMPTION 2000-2015 IN LITRES PER CAPITA PER YEAR
(SVERIGES BRYGGERIER, 2017). ... 9-72
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TABLE 23 – CARBONATED SODA CONSUMPTION 2004-2013 IN LITRES PER CAPITA PER YEAR (BRYGGERIFØRENINGEN,
2017) ... 9-73
TABLE 24 - EXAMPLES OF DIFFERENT TYPE OF SWEETENED BEVERAGES AND ENERGY DRINKS AND THEIR SUGAR CONTENT IN
SWEDEN ... 9-76
TABLE 25 - GLYCEMIC INDEX IN SUGAR-SWEETENED BEVERAGES AND ENERGY DRINKS ... 9-77
TABLE 26 - INPUT DATA OF TOTAL CALORIE CONSUMPTION AND TOTAL SUGAR CONSUMPTION FOR NORDIC COUNTRIES, UK AND USA. ... 9-78
TABLE 27 - DATA OF TOTAL PROTEIN- AND FAT CONSUMPTION FOR NORDIC COUNTRIES, UK AND USA. ... 9-80
List of equations
EQUATION 1 – ENERGY BALANCE……….2-17 EQUATION 2 – PRICE ELASTICITY OF DEMAND ………3-31 EQUATION 3 – TAX REVENUE (CASE 1) ……….5-48
EQUATION 4 – VAT FORMULA………...5-50
EQUATION 5 – TAX REVENUE (CASE 2) ……….5-52
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1 Introduction
The introduction section, of this MBA master thesis, will cover an overall background on sugar tax, the problem discussion, formulation and purpose as well as de-limitations and structure of the study.
1.1 Background on sugar tax
In the WHO report from 2016 it’s stated that in 2014, 39 % of adults world wide, aged 18 years and older, were overweight which means that they had a Body Mass Index (BMI) >25. In roughly 30 years the amount of overweight people has nearly doubled, which has resulted in that more than half a billion adults were classified as obese in 2014. Along with obesity comes other welfare disease such as diabetes, resulting in high costs for the society/state. The health trends are unfortunately going in the wrong direction and swift actions are required (WHO report, 2016). There are several different ways of mitigating these problems, increased physical activity, healthier food choices, and restricted access to fast- food etc. One tool in this toolbox is the taxation system, which has been used around the world in order to tackle this problem.
WHO (2016) states that “There are strong economic and health rationales for using fiscal tools: fiscal interventions play a key role in correcting for market failure; they can create incentives to reduce dietary risk factors for Non- communicative Diseases (NCDs) and generate revenues for the government”
(WHO report, 2016).
1.2 Problem discussion
This thesis will be a literature study that aims to deliver a factual answer to the question;
Should Sweden impose excise tax on sugar-sweetened beverages in order to improve public health?
Since the 1980s, the main focus, when it came to “bad nutrients” has been fat (BBC goodfood, 2017). At this time many different food supplements came into play where the fat had been reduced and in many cases the fat was replaced with sugar. Sugar is a cheap taste enhancer and extremely rich in calories. The cost of white sugar has more or less stayed unchanged since the 1980s when it cost 27.06 cents/pound (lb) compared to 27.22 cents/pound (lb) in 2013 (Sugarallienace, 2017). However, later research has shown that the main culprit
1-9 leading to poor health and welfare diseases such as obesity and diabetes is not fat but in fact sugar (Iris Shai et al., 2008).
There are many different strategies available in order for the society to tackle this disease problem and depending on political colour some would say it’s the state’s responsibility whilst others would say it’s up to every individual’s own choice. The fact of the matter is that society is paying a high price for medical care because of all these welfare diseases (obesity and diabetes) and in Sweden the medical care is primarily financed through tax, 82 % in 2012, (Socialstyrelsen, 2012). Direct healthcare, open care and pharmaceuticals cost caused by overweight and obesity has been estimated to 3.6 billion SEK in 2003 (Persson et al., 2004) and indirect costs of 12.4 billion SEK in 2003 (Persson and Ödegaard, 2005). If these two expenditures are recalculated to 2011 prices it corresponds to SEK 4.5 billion and 15. 6 SEK billion respectively, this equals to around 3.5 % of the total cost for all sickness treatments in 2011 prices (Persson and Ödegaard, 2011).
There are many different ways to tackle these challenges and Persson and Ödegaard (2011) identified seven options for slowing down/reverse the increasing obesity:
1. Information/education 2. Taxes
3. Regulation of fast food supplies 4. Focused subventions on healthy food 5. Medical interventions with drugs 6. Medical interventions with surgery
7. Medical interventions with prescription based physical activity
This thesis will focus on number two, taxes. A way to change the demand profile for a commodity is to alter the price, in general higher price means lower demand (Varian, 2006). Ideally would be to tax overconsumption of food, but a tax like that is not practically possible (Philipson and Posner, 2008). According to Philipson and Posner (2008) a tax would not be an efficient instrument to counteract the increase in obesity and the tax itself would cost more in administration than what it would gain in savings (gains and loss including administration cost will be analysed in more detail under section 5.8 on page 5- 54, and will show that depending on the imposed tax levels and reduction in consumption there are many cases that shows a positive net effect of adding such as tax). Powell and Chaloupka (2009) studied effects of low tax or subsidiaries and found that they would have no measurable effect on the obesity levels.
However, if a large price increase, due to a tax on unhealthy food, could have an
1-10 effect especially for children, teenagers and individuals with low socioeconomic status (Powell and Chaloupka, 2009).
This means that one option could be to place an excise tax on “unhealthy” food products such as soda, candy and fast food products. When it comes to food choices there is however a risk of redirecting the purchase flow towards lower quality products that still provides the same, let’s say, “sugar content” as the premium product so it’s required that the excise tax is structured in a way to minimize this risk in order to get an effect on public health. History has showed that if a country increases the tax this will not lead to a change in customer behaviour. The customer tends to buy cheaper products and, if possible, they’ll also increase the purchase of these products from neighbouring countries. Since the problem is global maybe a global tax increase is necessary (Snowdon, 2016) this would mean that if the excise tax where placed on the product itself that could leave the customer in a bind. If instead the excise tax was placed on the commodity sugar it has to be defined quite specifically which type of sugars etc.
that will be used (the two different cases will be analysed in sections 5.7.1 and 5.7.2 on pages 5-48 and 5-52). However if sugar becomes more expensive it’s likely that the producers will change their additives into something else, lately Coca Cola have introduced their Stevia-sweetened soda, Coca-Cola Life, that have close to the same taste as the original but with less calories (Coca-Cola, 2017). This will lead to another discussion about food additives, which is only limited discussed in this thesis, see further under section 1.4 on page 1-11, and under section 2.4 on page 2-15.
It is well known that calories coming from products with a high sugar content (fast carbohydrates), may provide the body with high energy levels without provide a feeling of satiety (not feeling full and still hungry). The sugar become an addiction and is easily over consumed (in contrast with protein or fat that is more difficult to over consume in it’s pure form), increasing the risk for diabetes and obesity and leading to high cost for the society/state (Iris Shai et al., 2008).
Therefore a “sugar tax” could lead to less consumption of sugar and be of great value for the society to affect the buying behaviour (demand profile) of customers to improve public health.
1.3 Problem formulation and purpose
The question about a “sugar tax” has been publicly debated in Sweden for several years and in this thesis Sweden will be compared with other countries that has introduced this type of taxation. In particular Sweden’s two neighbouring countries Denmark and Finland who has introduced taxes on food but with
1-11 different outcomes (Livsmedelsföretagen, 2014). The positive and negative impacts of an excise tax will be studied, together with how todays tax implementations differs from earlier attempts, since media all over the world today continue to report about new initiatives for “sugar taxes” that are about to be implemented. For example the newspaper “The Telegraph” writes that in United Kingdom approved a tax that will go into effect in 2018, where manufacturers will be taxed according to the quantity of the sugar-sweetened drinks they produce (The Telegraph, 2016).
The research tends to focus a lot on the health aspects of the tax whereas this thesis would focus more on the financial impact of the healthcare system, government as well as the consumer. However it’s still required quite a bit of biological and medical theory in order to understand sugars role in welfare diseases such as overweight, obesity and diabetes.
The hypothesis is that the excise tax has previously been placed on the product itself that could leave the customer in a bind. If the excise tax instead is placed on the commodity sugar, and the manufacturers of the product, this will decrease the demand of unhealthy food products thus improving the public health and provide a substantial tax income to the Swedish government. However it could very well be that the consumers takes the cost in the end, since the producer could increase their prices of their products in order to compensate for the more expensive raw materials, for example. Since welfare diseases such as obesity and diabetes are seen in many countries it is also important to implement these taxes on a global level, for example a EU directive. If the initiative is only made in a country by country set-up, without a more global framework, it could lead to an unbalanced trade exchange, which for example was seen and still is seen when it comes to people from Denmark travelling to Sweden to buy candy or the opposite of people from Sweden travelling to Denmark to purchase alcoholic beverages.
1.4 De-limitations
The overall topic “unhealthy food” includes a broad range of products such as sodas, candy, junk food, cakes etc., and this will be too wide of a subject to examine in this master thesis so some delimitations are necessary to address, in order to make it manageable within the time frame. Thus the focus of this thesis will be on sugar-sweetened beverages and the main question will be if an excise taxation of these products should be implemented specifically in Sweden and if it could lead to an increase in public health, a type of cost-benefit analysis. The thesis will focus on sugar-sweetened beverages only in order to make it feasible under the time frame of an MBA thesis knowingly that this strategy will not
1-12 likely revolutionize the overall health-impact as likely more areas are required to be addressed, it will however be start that could act as a kick-off point for further studies. Sugar-sweetened beverages taxation will not likely solve the problem with obesity and diabetes but it can however be one step in the right direction as a reduction of sugar intake.
1.4.1 Sugar-sweetened beverages tax not unhealthy food tax
Sugar-sweetened beverages have been selected, since these products have become more and more well studied. These types of products completely lack good nutrients for a wholesome health and are just a luxurious supplementary product. These calories are not in any way necessary or beneficial for people’s health but still a big seller worldwide due to it’s relatively cheep production cost (sugar flavoured water) and big market that spans from all ages and cultures.
Since the 1980s low-fat products has increased on the market, with the message to customers to improve their health by reducing fat from their diet. Low fat, so called “light” product with a low fat content, was seen as the saviour for peoples increased body weight and thus leading to the implementation of an excise taxation of high fat products for example in Denmark (Petkantchin, 2013). In later years the research has shifted towards sugar and that sugar is the “new bad guy” in peoples diet. We will not discuss the “fat tax” as such but the design of the “fat tax” implemented will be explained through a tax design perspective as- well as that there are estimates made on the cost for the administration of a tax that could help in the cost-benefit analysis of a tax on sugar-sweetened beverages. Since the goal with both of these taxes (fat-tax and sugar tax) is the same, improve public health through restriction bad nutrient consumption;
maybe the design of the excise tax of high fat products could be translated into an excise tax of sugar-sweetened beverages?
Sugar-sweetened beverages are exposed for strong competition by sweetener additives. However this will lead to another discussion about more or less natural food additives and will not be a part of this thesis. There will however be a short introduction to artificial sweeteners to broaden the perspectives of different beverage products, see section 2.4 on page 2-15.
1.4.2 Physical activity
Another aspect that could be included and analysed would be the amount of physical activity performed by people in general in order to see if these levels have decreased or increased with time. This thesis will not focus specifically on
1-13 those statistics but only minor comments with regards to calorie requirement data, which has an internal base on physical activity levels.
1.4.3 Tax system and health care system in Sweden
The tax system in Sweden will not be discussed in detail, the thesis will focus on an excise tax on sugar-sweetened beverages. This also applies to the health care system and how it works in Sweden and how the money are distributed and used in the health care organization. When it comes to the patients suffering from obesity and diabetes we will not discuss their condition through a medical point of view or what treatment and/or medications they need, instead some figures on estimated cost for their treatment will be presented as-well as calculation on what an excise tax of sugar-sweetened beverages in Sweden could generate/cost.
1.5 Thesis’ structure
The structure of this thesis will be that of a classic literature study. The thesis will start with defining what sugar is and how it’s connected to welfare diseases such as weight gain/obesity and diabetes. In order to tie this into economics we will study what cost effect obesity have on a society like Sweden. We’ll define some basics about supply and demand functions and see how they are affected by an excise tax. We’ll also define sugar, calories, BMI etc. so that the fundamental understanding is common prior to delving into the details. By studying other countries that have had, have and/or are about to implement a taxation on sugar- sweetened beverages it will be possible to draw parallels to Sweden to impose an excise tax. We’ll focus mainly on the Scandinavian countries, as they are very similar to Sweden in terms of culture and lifestyle. The methodology used will be a multiple case type study where the main analysis will lay in understanding other countries rational as well as identifying the need of a similar taxation set- up in Sweden. In order to build a report we’ll gather data on BMI development in Sweden, sales of sugar-sweetened beverages and consumption patterns to find if there is a relation between them and if so how is that relation. In order to connect the sugar-sweetened beverages to calories some fundamental data on calorie content will be put forward and link that to the consumption patterns.
Some estimative calculations on implementation of an excise tax will be performed in order to see what type of financial impact a tax of a certain type could have on the tax revenue as-well as demand decrease. The collective results will then be discussed based on the theory in order to evaluate if Sweden should or shouldn’t impose and excise tax on sugar-sweetened beverages.
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2 Background on sugar
In order to understand the relevance of a taxation of sugar-sweetened beverages a foundation on what sugar is and how the body make use of sugar is important.
This section will establish a baseline for sugar as a sweetener of sugar-sweetened beverages, how it affects the body and why it’s important to acknowledge sugars impact in welfare diseases such as obesity and diabetes. Understanding the energy balance of a human being will also be outlined so that the reader is familiar with human energy requirements as well as average consumption data values.
2.1 Sugar definition
Sugar is a general term for many different types of sugars, it exists naturally in for example fruits, berries an milk. However, the sugar used to sweeten beverages and food is sucrose, which is built up by glucose and fructose, it contains a lot of “empty energy” (also known as “empty calories”) since it lacks nutrients, vitamins, minerals and fibre as-well as giving no sensation of satiety (fullness). There are several different natural sweeteners, for example the natural product honey that consists of 4/5 sugars with traces of vitamins and mineral, and then there is soft brown sugar, syrup and raw sugar were all is in principle comparable with white sugar.
The term “Added sugar” means sugar that is not naturally in the product. Sugar can, and often is, added as an ingredient in beverages and food product since it is a cheap way of enhancing flavours (see the static price of sugar development in section 1.2 on page 1-8). There are multiple types of added sugars for example sucrose, glucose, fructose, maltose, dextrose, invert sugar, honey, HFCS (high fructose corn syrup) or ISO-glucose (Livsmedelsverket - Socker, 2017).
2.2 Sugar’s effect on human body
Sugar is classified as a type of nutrient called carbohydrates (note that there are many other nutrients that belongs in the group carbohydrates such as starch, fibres etc.), which is quickly converted into energy in your body. If the calories from the sugar are not converted into energy, shortly after consumption, they can be converted into stored body fat by a process known as lipogenesis. Sugar will also cause the blood sugar in the body to rise rapidly, which causes increased insulin levels in the blood. Insulin is a hormone present in the body to help regulate the blood sugar levels and act as a “key” for the sugar molecules to exit the blood and enter the cells. If sugar is not used for energy, insulin removes it
2-15 from the blood, and it is then converted into triglycerides in the liver. These triglycerides can then be stored as body fat (Livestrong, 2017).
Glucose is needed for the brains function and is found in carbohydrates, in form of e.g. starch, which exists in many food products such as potatoes and bread.
These types of carbohydrates are important for the human body since it can be digested into glucose. However there is no need for added sugar in humans’ diets.
In the Nordic nutrition recommendations (NNR, 2012), less than 10 % of the energy is recommended to come from added sugar. For an adult human that corresponds to roughly 50-75 grams of sugar/day depending on individual energy requirements. According to the Swedish food administration the latest survey of Swedes food habits from 2011, report that 40 % of Swedes consumes more sugar than this recommendation. However there are no studies that report a positive effect on health in consuming white sugar (Livsmedelsverket - Socker, 2017).
WHO recommends that the intake of free sugars, such as added sugar, natural sugar in honey, sugar syrup, fruit juice and fruit juice concentrate should be less than 10 % of the daily energy intake (Livsmedelsverket - Socker, 2017).
2.3 Sugar-sweetened beverages
Sugar-sweetened beverages are any “liquids that are sweetened with various forms of added sugars. These beverages include, but are not limited to, soda (regular, not sugar-free), fruitades, sports-drinks, energy drinks, sweetened waters, coffee and tea beverages with added sugars. Also called calorically sweetened beverages.” (U.S. Department of Health and Human Services and U.S.
Department of Agriculture 2015–2020, 2015).
2.4 Artificial sweetened beverages
Artificial sweetened beverages are beverages sweetened with other sweeteners than different forms of added sugars. The benefits of adding a non-energy adding artificial sweetener are that the sweetener contains less energy (calories, kcal) than sugar. Examples of these non-energy additives are Saccharine, Cyclamate, Asesulfame potassium, Sucralose, Neohesperidin dihydrochalcone, Stevia and Thaumatin. Among all these Saccharine, Cyclamate, Asesulfame potassium is fully synthetic and has no correspondence in nature. Neohesperidin dihydrochalcone is made from a substance naturally occurring in citrus peel whereas while Thaumatin and Stevia are made from plants (e.g. Coca-Cola Life, a newer type of Coca-Cola than the regular Coca-Cola, is sweetened with an extract from Stevia, see also section 9.5 on page 9-76). Another known sweetener
2-16 is Aspartame, which is synthetically made from the two amino acid phenylalanine and asparagine acid. However they are not completely energy free and have strong sweetener levels, which allow it to be used in very small amounts, and the energy it adds can be neglected. The artificial sweeteners have different amount of sweetness levels but common for all is that they are all much sweeter than regular table sugar (white sugar). (Livsmedelsverket – Sötningsmedel, 2017)
Health aspects, of artificial sweeteners, have been greatly discussed and thoroughly studied and are all approved as additives in food (in Sweden), meaning that as far as we now know it should be safe to consume these additives.
It’s currently regulated what type of additives that are allowed to be used and also in what amounts. People suffering from Phenylketonuria (a metabolism error, inborn) should for example avoid aspartame. However it should be noted that there have been single articles pointing towards glucose level rises caused by artificial sweeteners but in order to be certain of it’s effect further studies are required and the Swedish National Food Agency have requested the European Food Safety Authority to make a thorough scientific evaluation of the singles study’s results in order to assess it’s validity (Livsmedelsverket – Sötningsmedel, 2017).
2.5 Body mass index (BMI)
BMI stands for Body Mass Index and is per definition a persons weight in kilograms divided by a persons’ height in meters squared. BMI=Weight/length2
=Kg/m2=BMI. WHO (2017) states that the normal weight is ranging between 18.5-24.9 and above this is defined as pre-obesity and obesity, Table 1:
Table 1 - BMI ranges and definitions
BMI Nutritional status
Below 18.5 Underweight
18.5–24.9 Normal weight
25.0–29.9 Pre-obesity
30.0–34.9 Obesity class I 35.0–39.9 Obesity class II Above 40 Obesity class III
BMI ranges describe health status of individuals in different weight stages. The higher the BMI number is, the higher the overweight is and increased risk for
2-17 diseases and death caused by high blood pressure, cardiovascular diseased, premature death, osteoarthritis, some cancers and diabetes (WHO, 2017).
2.6 Definition of calories in connection to food and empty calories
The food we eat contains energy – calories – that we require to live and function.
Too much energy makes us obese and too little leads to weight loss and ultimately starvation and death. Some food items contain a lot of calories per grams whereas others contain little (Livsmedelsverket – Mat och hälsa, 2017).
In this section calories in connection to food and daily calorie requirement will be presented along with what defines “empty calories” as that is an important piece of information in understanding sugars role in the energy balance.
2.6.1 Calories in connection to food
A calorie is in connection to food defined as “a unit equivalent to the large calorie* expressing heat-producing or energy-producing value in food when oxidized in the body” (Merriam-Webster, 2017).
*large calorie = kilo calorie, kcal (thesis author’s comment).
2.6.2 Energy requirement / energy balance
The level of energy requirement for an adult depends mainly on three things:
• Basal energy requirement, which means the amount of energy that a specific human body uses in rest.
• Foods thermogenic effect, which means the amount of energy, required for digesting the food.
• Physical activity level, which means the amount of movement, a specific human body does.
Movement and calorie restriction is important in order to be in balance with the daily energy requirement (Livsmedelsverket – Energi och kalorier, 2017).
A balanced energy intake equals the energy output, or more specifically we can use the definition from chemical engineering. The most simple equation for describing this is a so called macroscopic material balance shown in equation 1, below (Kemisk reaktionsteknik A, 2006):
!" + !"#$%&'$ = !"# + !""#$#%!&'( (1)
2-18 Meaning that the energy intake, plus the energy produced (from the intake) equals the energy output and the energy accumulated in the system (such as energy used for movement, metabolism etc.). A system in complete balance means that the body weight is static.
Energy is a positively charged word, but too much energy from food, can negatively affect the body (if not accumulated and burned by the body) and increase weight and lead to obesity. Examples of high calorie products are:
pastry, candy, snacks, fat dairy products, fat sauces and fried food (Livsmedelsverket – Energi och kalorier, 2017).
2.6.3 Calories in relation to nutrients
Nutrients that contributes to energy production is protein, carbohydrates, fat, alcohol and dietary fibre. Previously dietary fibres were not included as giving any energy, however because they are digested partly in the large intestine it’s counted as providing roughly half as much energy as other carbohydrates. See Table 2 below for data on calories per food nutrient.
Table 2 - Calories per food nutrient
Gram kcal kJ
1 gram protein 4 17
1 gram carbohydrates* 4 17
1 gram dietary fibre 2 8
1 gram fat 9 37
1 gram alcohol 7 29
* Glycemic carbohydrates, which is to say they that is digested in the small intestine, Livsmedelsverket – Energi och kalorier, 2017.
Energy can be expressed both as kilo joule (kJ) and kilo calories (kcal). 1 kJ=0.239 kcal, 1 kcal = 4.184 kJ. Note that the feeling of satiety is not the same for all nutrients and that there is currently no scientific means of measuring satiety (Livsmedelsverket – Energi och kalorier, 2017).
2.7 Energy requirement
For an adult person the energy intake requirements depend on the physical activity of the person. If the person is not active, the energy requirement is lower than if the person is active. The reference values for energy intake (kcal/day)
2-19 rounded off to closest 100th for an adult person on Nordic countries are seen in table 3.
Table 3 - Energy intake for adults in Nordic countries based on physical activity levels
Women Low* Medium* High*
18-30 years 2000 2300 2500
31-60 years 1800 2100 2400
61-74 years 1700 1900 2200
Men Low* Medium* High*
18-30 years 2500 2800 3200
31-60 years 2300 2600 3000
61-74 years 2000 2300 2600
*Based on Physical Activity Level (PAL) 1.4; 1.6 and 1.8, according to NNR (Nordic nutritional recommendations 2012), Livsmedelsverket – Energi och kalorier, 2017.
Calculating an average (due to sugar consumption data is not split between men and woman) for women and men, from the previous table, the following table can be created, see Table 4 below.
Table 4 - Average energy intake for adults in Nordic countries based on physical activity levels
Average Low* Medium* High*
18-30 years 2250 2550 2850
31-60 years 2050 2350 2700
61-74 years 1850 2100 2400
*Based on Physical Activity Level (PAL) 1.4; 1.6 and 1.8, according to NNR (Nordic nutritional recommendations 2012), Livsmedelsverket – Energi och kalorier, 2017.
2.8 Energy percentage (E %) and example meal
Energy percentage (E %) means how large part of the energy in food that the different nutrients are contributing with. Let’s look at an example meal, which will provide a better understanding for Energy percentage and overall understanding for where the energy comes from on a meal.
An example meal consisting of potatoes, salmon, sour crème sauce, wooked vegetables, Swedish rye bread and a glass of light milk gives ca. 670 kcal (2800 kJ), 38 gram protein, 23 gram fat, 72 gram glycemic (absorbable) carbohydrates and 9 grams dietary fibre, see Table 5 below (Livsmedelsverket – Energi och kalorier, 2017).
2-20
Table 5 - Energy percentage (E %) for an example meal
Type Kcal per
nutrient
kca l
kcal/total kcal of 670
38 gram protein 38 gram x 4 kcal 152 23 E %
23 gram fat 23 gram x 9 kcal 207 31 E %
72 gram carbohydrates (glycemic) x
72 gram x 4 kcal 288 43 E %* carbohydrates (glycemic) 9 gram dietary fibre 9 gram x 2 kcal 18 3 E %* dietary fibre
* Carbohydrates contributes with total of 44 + 3 = 47 E %, Livsmedelsverket – Energi och kalorier, 2017.
2.9 Empty calories
Empty calories is defined as food that are energy dense but low on nutritional value (Nordström & Thunström, 2010). An example of empty calories in food is candy and sugar-sweetened beverages because they contain a lot of white sugar.
(Livsmedelsverket – Mat och hälsa, 2017).
2.10 Glycemic index and Glycemic load
Glycemic index, GI, is a method for measuring how fast carbohydrates are taken up by the body from different food products. In order to compare how food products with different carbohydrate the blood sugar is affected by s content the term glycemic load, GL, is used (Livsmedelsverket – GI och GL, 2017).
2.10.1 Glycemic Index (GI)
GI is a standardized way of measuring how fast and long the blood sugar level is affected after eating a certain food production compared to white bread of pure glucose. The terminology divides food products into “fast” and “slow”
carbohydrates. A high GI level means that the blood sugar raises fasts and requires more frequent eating. A low GI, on the other hand, means slower uptake of carbohydrates and slower blood sugar rise, which reduces the insulin effect after a meal. A low GI contributes to keeping the blood sugar on a balanced level between meals and results in a healthier fat metabolism and blood fat levels.
2-21 Three things dictate the speed of carbohydrate metabolism:
• How the carbohydrates are constructed/built
• In what form the carbohydrates exists, for example if it’s full grains or crushed to flour
• If the carbohydrates have been heat-treated, if they are cooked or if they are raw.
Sugar-sweetened beverages (Soda), lemonade, candy, white bread and pastries rapidly increase the blood sugar level and thus have a high GI value.
Bread (non-white), cereal, grains, pasta, rise with a large portion of whole grains are examples of food products that gives a slow and extended increase of the blood sugar and thus have a low GI value (Livsmedelsverket – GI och GL, 2017).
GI is, in many cases, easier for people to interpret than calories since it gives a direct indication of the benefit or cost of consuming the product.
2.10.2 GI-values found in tables
Values found in tables for GI can be used as an indication on fast and slow foods, however they cannot be used as a 100 % defined values since there are too many unknowns around the tabled values. For examples, with potatoes, it depends a lot on the specific type of potato, how it is cooked and for how long it is cooked since all of these variables greatly affect the GI value (Livsmedelsverket – GI och GL, 2017).
2.10.3 Glycemic Load (GL)
Sometimes another term, called Glycemic Load (GL) is more relevant to use than GI. GL take into account how large a normal portion of different foods are and how the blood sugar is affected. GL is thusly a method to compare Glycemic Index in different food with different carbohydrate content. GI for potatoes is higher than pasta, but GL for potatoes is lower. This is because potatoes contain fewer carbohydrates per normal portion than pasta.
Another aspect that should be included is satiety from different foods. However there are no direct correlation between GI, GL and satiety. However sugar- sweetened beverages provides low satiety and have high GI and GL values (Livsmedelsverket – GI och GL, 2017; 1177, 2017).
2-22 2.11 Sugar and correlation with welfare diseases
A multitude of studies shows a correlation between eating high levels of sugar and weight increase, as well as for those who reduce the sugar intake will loose weight. The effect on the body weight depends of course of that the energy intake is changed. Sweetened drinks have shown to increase obesity (and risk of diabetes) among children where other products don’t tend to have that strong of a connection. According to the study “Riksmaten Vuxna 2010-11” the risk is elevated with as low of a level of 0.8 litre/week of sweetened drink intake (Livsmedelsverket - Socker, 2017).
3-23
3 Theory
In order to analyse why taxation on sugar-sweetened beverages is of interest and how it should be implemented several building blocks are required to create a strong foundation. Understanding what sugar is and how it affects the human body, as-well as how these effects can be measured are important and gone through in section 2 on page 2-14. A supplement/complement to the sugar- sweetened beverages are artificial sweetened beverages and a brief introduction to those additives will add some width to the understanding (see section 2.4 on page 2-15). Consuming sugar means consuming something that is rich on calories and in order to build a report it’s important that an overall understanding for calories and the energy requirement amongst human beings are necessary (see section 2.6.2 on page 2-17). There is a balance between input and output and when it’s off it will either lead to either starvation or overweight whereas many developed countries struggle with the latter (see section 2.6.2 on page 2-17). The connection between sugar consumption and welfare disease such as obesity and diabetes are important to realize in order to understand what sort of cost impact these diseases have on the society (see section 3.1.1 on page 3-24). A way of battling over consumption of a good is to increase the price through taxation. The tax requires to be designed properly and since consuming sugar has a negative externality on both consumer and state the terminology externality needs to be clarified and discussed (see section 3.2.1 on page 3-25). There are many countries that have tried and are in the process of introducing taxation on sugar-sweetened beverages and if Sweden were to introduce a tax like that it’s possible to learn a lot from previous attempts and implementations (see section 3.4 on page 3-33.) In order to understand how the consumption patterns change with price change the term elasticity is defined and also valid data for elasticity on sugar-sweetened beverages are presented (see section 3.3 on page 3-31).
3.1 Taxing sugar
Veerman et al. (2016) reports that sugar-sweetened beverages are the most common product to increase tax on, and perhaps the most efficient one especially since it is strongly associated with overweight, obesity and diabetes. The product lack good nutrients and health benefits and can be seen as a luxurious product that most people like to buy and drink even if it is just “empty calories” (Veerman et al, 2016). There are no positive effects of consuming sugar (Livsmedelsverket - Socker, 2017) since there is no added value, as such, of consuming sugar, thus the most logical part to tax is sugar. Since the body requires both proteins, fats and other carbohydrates there is no immediate logic in taxing these nutrients since they provide vital building blocks and satiety that sugar does not.
3-24 The theory behind a “sugar tax” could at first sight be very simple; the tax increases for a certain product leading to a more expensive product, which means a decline in demand from the customer and a reduced sale. According to Snowdan (2015 & 2016), if the sales of sugary products decline, people will consume fewer calories, thereby reducing the prevalence of people getting ill in welfare diseases such as overweight, obesity and diabetes. Since these diseases are an enormous cost to the society (see section 3.1.1 on page 3-24), that will increase if no action is taken, there will likely be a great economic benefit for the society if they can be avoided or at lest reduced (Snowdan 2016 & Snowdan 2015). This reasoning is logical and easy to follow, so why not just start taxing products that are bad for health as a simple action to reduce obesity-related diseases and save money for society? Snowdan (2016) argues in his work that when taking a closer look at this decision chain discussed above, it becomes evident that this will not work if any of the underlying assumption in this chain of events fail. This simple model will only work if the consumers behave exactly as they are supposed to do, which is impossible to know and also very unlikely that they will do.
3.1.1 Cost for overweight and obesity
As stated in the introduction it’s been estimated that cost for overweight and obesity was 3.6 billion SEK in 2003 (Persson et al., 2004) and indirect costs of 12.4 billion SEK in 2003 (Persson and Ödegaard, 2005). If these two expenditures are recalculated to 2011 prices it corresponds to 4.5 billion SEK and 15.6 billion SEK respectively, this equals to around 3.5 % of the total cost for all sickness treatments in 2011 prices (Persson and Ödegaard, 2011). The treatment cost has been shown to be severally higher for those with a high BMI, Figure 1 (in Swedish) shows the additional cost (in SEK) of treating a patient with overweight or obesity (Person and Ödegaard, 2005). How much of these costs that are associated with sugar-sweetened beverages consumption is difficult to say but it’s a fact that consumption of sugar-sweetened beverages increase the risk for developing diabetes. A study made by Malik et al. (2010) including 310,819 participants shows a 26 % greater risk of developing diabetes type 2 for consumption of 1-2 servings of sugar-sweetened beverages a day. Too many uncertainties will be introduced if estimation calculation is performed on this in order to determine the amount of diabetes cases in Sweden that is primarily caused by sugar-sweetened beverages and thus that will not be attempted.
3-25
Figure 1 - Extra additional yearly hospital costs in SEK (light gray), defined as the difference between average medical care between overweight and normal weight and obese and normal
weight for Sweden in year 2003. Source: Persson and Ödegaard, 2005.
3.2 Supply and demand curve effects by excise tax and tax design
One way to reduce the risk for welfare diseases could be to decrease the demand for the causality products such as sweets and sugar-sweetened beverages. This can be done by the inclusion of an excise tax that will affect the supply and demand curves and form a new, lower, equilibrium and increasing tax income that can be used for treating welfare diseases (more details about this is discussed in section 5.6 on page 5-48). With such a tax in play there exists two prices of interest in a market, one price that the demander pays and the price that the supplier gets, the difference between these prices is the tax that goes to the government in some form or the other (Varian, 2006).
3.2.1 Tax design
There are many different types of taxes that are possible to impose. The two most common types are quantity taxes and value taxes (so called ad valorem taxes) (Varian, 2006). Snowdon (2016) states that tax on sodas and other sugar- sweetened beverages can basically be put as a general sales tax or a special excise tax to specific products. Excise tax is better than sales tax for targeting sugar consumption uniformly. The cohort that enjoys drinking sodas can reduce the amount of sales tax paid per volume unit by buying in bulk, switching to a
3-26 less expensive brand or just stop ordering sugar-sweetened beverages, however an excise tax will tax the weight of a sugar-sweetened beverage at the same rate, regardless of the price.
There is also the psychological aspect of how the taxation is presented to the customer. The excise taxes on a product will show “on the shelf” on the price tag of the product whilst the sales tax will appear, depending on country, on the bottom of the receipt. It’s important that the retailers pass on the full tax to the consumers in order to affect the behaviour. If they do not pass on the full tax the incentive to purchase fewer sugar-sweetened beverages may weakened. Berkley, California, have an excise tax of 1 cent/ounce which have the downside that it doesn’t premiere the behaviour of changing to a less sweet beverage since for example it treats 8-ounce cans of ice tea with 13 grams sugar is taxed the same as 8-ounce cans of soda with 39 grams of sugar (Snowdon, 2016). The tax could encourage consumers to choose a smaller volume soda instead of a larger one but they will not offer incentive to switch from the soda (high sugar) to the iced tea (less sugar).
United Kingdom has a refined excise tax that targets sugar consumption by levying different tiers of tax based on the amount of added sugars in a beverage.
If the main goal is to indeed reduce the sugar consumption with a tax on sugar- sweetened beverages the excise tax based on the amount of sugar is more effective than the one based on volume or price paid by customer (Snowdon, 2016).
Snowdon (2016) refers to the report “The Short and Sweet of Taxing Soda”, by Hill and Davies from the Institute on Taxation & Economic Policy, 2016 that taxing sugar-sweetened beverages means that low-income individuals will pay a larger share of their income in the tax than higher earners. An excise tax on sugar-sweetened beverages will be more regressive than other consumption taxes because it’s based on quantity rather than price. Those that purchase cheaper brands have the same tax as those who buy more expensive brands. The other aspect is the fact that a beverage tax will impact low income classes higher since their consumption is in general higher than for higher income classes. In the report 4 different scenarios is identified, where this excise tax can lead to better health (Snowdon, 2016):
1. Businesses decides to absorb the tax, and not pass it on to customers, this will lead to declined profits for the industry with no change in sales and customer consumption.
2. Business decides not to absorb the tax but consumers will pay the extra price and instead make cuts in other parts of their household budget. In
3-27 economic terms they will have an inelastic demand and spend less on other products and maybe also work longer hours or borrow money to finance the purchase. This would in short mean that they buy little less of the product, but not enough to make a real change.
3. Consumers take action on the higher prices and switch to cheaper brands of similar product or shop at cheaper stores. If the tax is very high it could generate a black market and derail consumers into a parallel society of
“sugar shops”. The consumers that do change to cheaper brands will consumer the same amount of calories (or even more if the brand uses more sugar) and thus will have the same risk as before, or higher, of becoming overweight.
4. Last, but not least, the consumers could start buying less of the excise taxed product but more of other high-calorie products. For example they could buy less soda but more beer or candy. The result would basically induce substitute effects and lead to fewer sales of one product but more of another and thus not reduce calorie consumption (Snowdon, 2016).
3.2.1.1 Quantity tax
Quantity tax is a tax set per unit of quantity bought or sold, for example gasoline tax. In Sweden the tax for 2017 on non-environmental classed gasoline is 8.52 SEK, including 25 % value added tax (VAT) on the energy tax part (Skatteverket, 2017). A litre of gasoline purchased at Circle-K costs 14.22 SEK (Circle-K, 2017).
The demander is paying price Pd, whereas the suppler gets the remains with the tax deducted. Pd=Ps+t => 14.22 = 5.70 + 8.52 SEK
3.2.1.2 Value tax (ad valorem tax)
Using the previous example of the 25 % VAT on the energy tax part of gasoline is a type of value tax giving Pd=(1+t)*Ps. The energy tax is 4.72 SEK in 2017 (Skatteverket, 2017). This means that the Energy tax Pd = (1+25 %)*4.72=5.9 SEK, in this case it is a tax on a tax.
