A Sales Tax Is Better at Promoting Healthy Diets than the Fat Tax and the Thin Subsidy

Rising prevalence of obesity among adults and children is a major policy issue in many countries. Two widely discussed instruments to address obesity are a tax on unhealthy foods (fat tax) and a subsidy on healthy foods (thin subsidy). We compare these two policies to a sales tax on all food products, taking into account the different opportunity costs in terms of time for healthy and unhealthy meals. We show that the policy which reduces obesity under the most general conditions is the sales tax without the fat tax and the thin subsidy. Moreover, this policy is the only one which unambiguously stimulates healthy consumption.