Supporting Healthier Diets : Taxing Ultra-Processed Products While Subsidizing Minimally-Processed Foods Among the Poor

Fiscal policies can help shift the relative food prices to encourage vs. discourage consumption and improve diets, especially among the poor. We use 2017-2018 packaged food purchase data for U.S. households to derive income- and household composition-specific demand elasticities across 22 aggregate categories including non-/minimally-processed and ultra-processed foods and beverages. We then simulate how several counterfactual national ultra-processed food taxes alone and alongside healthy food subsidies targeted to low-income households might shift purchases and their implications for nutrition and economic outcomes. Importantly, we find a sugar density-based tax on sugar-sweetened beverages would lower both volume and calories purchased with the largest impact on low-income households without children, and targeted subsidies would increase fruits and vegetables as well as healthy drink purchases without substantially increasing calories. In comparing low- vs. higher-income households, we find that under the tax simulations, low-income households would make larger reductions in their absolute volume and calorie purchases of taxed foods/beverages compared to higher-income households, suggesting these policies, if adopted and implemented, can help narrow nutritional disparities. Combining taxes and subsidies could help encourage healthier purchase composition with net caloric reduction for all low-income households while providing these households with a net economic gain and provide the federal government with a $10.4 billion revenue surplus under counterfactual policies considered in this study