Distributional Effects of Taxation of Processed Foods in Brazil

This paper examines the potential distributional effects of a tax increase on processed and ultra-processed foods. Using data from the most recent Brazilian consumption survey (POF 2017/2018), it analyzes the welfare changes that households would experience when facing increased costs for these products. Using an extended cost-benefit analysis model to assess net income effects, the paper considers three distinct dimensions: changes in product expenditure, changes in medical expenditure, and changes in years of life lost. The findings suggest that the tax increase would have a progressive impact, benefiting households at the lower end of the consumption distribution in all three dimensions. Overall, the study highlights the potential for targeted taxation policies as a "triple win” to address health concerns, promote greater equity, and increase fiscal revenues