How Effective Is a Fat Tax in Dealing with Obesity

V Introduction:
Obesity is a rising concern and the government must intervene in order to change people’s eating habits and monitor their consumption in order to prevent illness, loss of working hours and so on. Further on this report, I will go on to discuss: 1- Obesity and why is it a growing concern? 2- Why should the government intervene? 3- What is a fat tax and what is its effect? 4- How might we impose a fat tax? 5- Impacts 6- Conclusion

Obesity and why is it a growing concern?

Obesity is a medical condition in which excess body fat has accumulated to the extent that it may have an adverse effect on health, leading to reduced life expectancy. Today, obesity has now found its spot as our country’s most crucial health problem, contributing to a huge increase of diabetes, heart disease and cancer. The consumption of excess junk food along with little or no exercise routines fitted into ones schedule leads to obesity. Little has been done to address the problems of overeating and poor dietary choices.

In Dubai, according to an article in the Gulf News, obesity is said to have a greater impact on health rather than smoking or alcoholism. Furthermore, it stated that 20% of the population were obese, which is more than the US!
People prefer unhealthy junk food because it is available easily and convenient. Take for example malls. In Dubai especially, the 3 main fast food restaurants are McDonalds, Pizza Hut and KFC. Research proves that in the last few years, there is a rocketing increase in the number of the Mc Donalds and Pizza Hut stores clearly showing the growing inclination of the people choosing the fatty foods. No matter which mall you’re in, you’re bound to find these 3. Malls can choose what restaurants they wish to allow to be set up and knowing that they produce unhealthy food, they still promote it. Why? -simply because they are pure profit centers. They do not care about the social concerns or the opportunity cost to these restaurants which is a major health hazard.

Why should the government intervene?
Most people would believe that weight is an individual concern but I believe that that there is a strong need for Government Intervention. If people find it difficult to stay healthy then the Government needs to tax those foods that discourages them from doing so like junk food (pizzas, burgers, fries etc) Afterall, it is the governments duty to protect its citizens.
Also, obesity is an economic concern because it imposes cost such as medical costs for treating obesity as it results in illness such as heart failure etc and inevitably results in lost working days.

My question is that if governments such as India etc heavily fat tax cigarettes and alcohol then why not junk food? Advocates of the tax point to the effect taxes have had on alcohol and tobacco use. Five published studies found that drinking declined as the price of alcohol increased. And so since junk food too is a major health hazard, the government should do something about it.
What is a fat tax and what is its effect?
A fat tax [an economic incentive] is a tax or surcharge that is placed upon fattening foods and beverages. It aims to discourage unhealthy diets and offset the economic costs of obesity by affecting people’s decision-making in order to bring the outcome closer to the socially desirable one.Numerous studies suggest that as the price of a food increases, consumption or the demand of that food decreases.

This is shown in the diagram below:

* Equilibrium Price is P * Quantity demanded and Quantity supplied is Q * The Price increased from P to P1 * Demand decreased from Q to Q1

How might we impose a fat tax? 1- One way we could impose a fat tax is by increasing the price of some fatty food items that are the leading cause of obesity for example burgers, fries and pizzas. This would decrease the demand for it.

2- Evidence- Taxing soft drinks and pizza can decrease the amount of calories that people consume from these foods. A study found that a 10 percent tax on soda led to a 7 percent reduction in calories from soft drinks, and a 10 percent tax on pizza led to a 12 percent reduction in calories from pizza. These researchers believe that an 18 percent tax on these foods could cut daily intake by 56 calories per person, resulting in a weight loss of 5 pounds (2 kg) per person per year. The study followed 5,115 young adults ages 18 to 30 from 1985 to 2007 This suggests that price plays an important role in deciding what consumers buy.

Furthermore, the revenue gained from this could be used to subsidize the costs of healthy food, exercise equipments and advertising campaigns that promote healthy eating therefore encouraging a healthy diet to the people and therefore eventually contributing towards reducing obesity. `
According to a survey, the majority of American consumers would support a 'fat tax, ' or a tax placed on unhealthy processed foods, if the revenues were used to make healthier food less expensive. The survey, conducted by 'healthy lifestyle ' firm eDiets.com, revealed that 75 percent of participants would support the tax designed to discourage consumers from purchasing high-fat, low-nutrition foods. The survey also showed that 57 percent of respondents said they consume junk food at least once a week, 62 percent said that a tax imposed on these foods would affect their purchasing habits, which in my opinion is then intention.

3- Indirect fat taxes
Some may go against this saying that they have a right to freedom of choice it is their wish so for those people I propose an indirect fat tax that will affect only the fast food restaurants. We term some of the foods as junk food simply because the food is fried in oil. And we all know the effects excessive oil consumption could lead to obesity if there isn’t exercise. This is because these restaurants re-use the oil repeatedly (for fries etc) and sometimes, this can go on for days. This when consumed, leads to the build up of trans fat that is extremely difficult to burn off. If the government makes it compulsory for such restaurants to change their oil every single day, even though it might be very expensive, the fat would not be as hard to burn as trans fat and therefore this can be a really effective way to counter obesity.

4- Foods could be taxed according to the percentage of fat they contain

In this method, we take certain food groups such as crisps, snacks and soft drinks and apply a tax (e.g. a percentage of the original price) and tax only the amount of fat they contain. The motive behind this is to introduce a tax depending upon the food’s unhealthiness so that people will see healthier alternatives as their only solution such as fresh juice or lower sugar cereals.

An example of introduced taxes could be:

10fils/kilogram on saturated fat;
10fils/kilogram on monounsaturated fat;
10fils/gram on sodium (obtained from salt);
10 fils/gram on cholesterol.

A problem faced in going with this idea is deciding on which food items will face the taxes and which will be excluded. Some items such as fresh full fat milk that can be very fatty cannot be heavily taxed as mothers with growing children will find it hard to provide their children with essential nutrients at their crucial stage.
Therefore a solution to that problem would be to tax the food item based on its elasticity.

Price elasticity of demand- It measures the responsiveness of a change in quantity demanded to a change in price.This is calculated as the percentage change in the quantity demanded divided by the percentage change in the price. Since demand falls as prices rise, the greater the elasticity, the smaller the increase in price needed to reduce consumption by a target amount. For example, if we wanted to reduce consumption of jam by 10% and its elasticity were –1.0, it would require a 10% increase in price to do so, but if its elasticity were –2.0, it would require only a 5% increase.
Another problem would be its effects it would have on people i.e. the higher, middle and lower class.

Impact on lower class: On an average, the burden of this kind of fat tax would be big because the poorer people would pay a greater share of their total income than richer people, which is unfair. It’s not like we can tax people the way incomes are taxed so this stands as a big obstacle.

Impact on Middle-class:
It is similar to the lower class. The people belonging to the middle class pay ¼ of their total income on food. The only way to avoid paying a huge cost would be if they consumed significantly less fat, sodium or cholesterol- which the intention is therefore supporting the probability of fat tax being effective.

Impact on Higher class:
These people spend a small proportion of their income on food. Increasing the price of unhealthy items won’t affect them as much but it will result in a little change in quantity demanded therefore promoting healthy eating.

5- One final way we may prefer to tax people is according to the excess of calories consumed over calories expended each day – though, in any practical sense this would be impossible to record and charge- so this idea is should be omitted.

Conclusion;

Obesity is a rising situation throughout the world and we must tackle it immediately to avoid illness such as heart failure, cancers and lost working hours. As a solution, a fat tax could be introduced to promote a healthier future. This method can be implemented in various ways such as increasing the prices of fatty foods, taxing the fat nutrients per food item, taking people by the excess calories consumed or indirectly by asking companies and restaurants to change their cooking ideas. The money generated from this fat tax could be spent on promotion campaigns and advertising ideas for healthy food and the purchase of exercising equipment. This money could also be used to fund subsides for healthy food so that people change their eating habits. In summation, fat tax is an effective way of changing people’s habits and making the future a better place to live in.

Bibliography: http://en.wikipedia.org/wiki/Obesity http://gulfnews.com/news/gulf/uae/general/obesity-a-big-problem-in-uae-

1.423586http://en.wikipedia.org/wiki/Fat_tax

http://www.dailymarkets.com/stock/2010/03/09/mcdonalds-sales-on-the-rise/

http://www.foodnavigator-usa.com/Financial-Industry/Consumer-survey-reveals-support-for-fat-tax

http://eprints.ucl.ac.uk/14931/1/14931.pdf

Bibliography: http://en.wikipedia.org/wiki/Obesity http://gulfnews.com/news/gulf/uae/general/obesity-a-big-problem-in-uae- 1.423586http://en.wikipedia.org/wiki/Fat_tax http://www.dailymarkets.com/stock/2010/03/09/mcdonalds-sales-on-the-rise/ http://www.foodnavigator-usa.com/Financial-Industry/Consumer-survey-reveals-support-for-fat-tax http://eprints.ucl.ac.uk/14931/1/14931.pdf