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Call for a tax on chocolate

A GP from Scotland has suggested to a British Medical Association conference on Wednesday that a special tax should be levied on chocolate to help prevent obesity. He said: “Obesity is a mushrooming problem.”  Well he could make his mind up, is it due to mushrooms or chocolate?

 

Anyway, Stephen Romer, from the University of Westminster has written an article on “Obesity and the fat tax” for our photocopiable book entitled: Market and Government Failure: The Cutting Edge. His conclusions are as follows:

 

To Tax or Not to Tax

In a developed, pure market economy, the case for any government intervention to tackle the growing obesity problem is less than compelling. The only economic argument that can be made for intervention on the grounds of market failure is the subjective evaluation that fatty foods constitute a ‘demerit good’ in which case the government would be adopting a paternalistic role in assuming that they know better than the individual what, exactly, that individual should consume. However, in the UK, with a publicly funded health service the case for intervention is stronger, since free health care at the point of access might result in moral hazard whereby individuals do not take into account the full costs of unhealthy eating. The term moral hazard means a situation whereby an insured individual (whether insured privately or by the state) makes less effort to avoid misfortune than they would otherwise. The case for intervention is particularly strong when attempting to influence the consumption decisions of children, since they are most vulnerable to the marketing of producers, and are particularly likely to lack the necessary information (or the ability to act upon that information) to make ‘rational’ consumption decisions. And indeed, many of the UK Government’s recent interventions aimed at promoting healthier eating have directly targeted children.

 

Should the government try to tax obesity?

Should the government try to tax obesity?

 

Other, broader government initiatives have been the introduction of a ‘traffic light’ system for food labelling, the ‘five fruit and vegetable a day’ campaign and work with the food and drink industry to develop voluntary codes for the promotion of foods to children: all of these policies – as well as European regulation requiring food packaging to list the ingredients and nutritional contents of foods – are designed to close a perceived ‘information gap’ about the contents of food and the consequences of overconsumption.

However, the government has so far resisted the temptation to impose some kind of ‘fat tax’, and the analysis provided here suggests that this may be a sensible decision since the practical problems of levying such a tax are very considerable, and the potential benefits are less than assured. The prospect for government failure seems enormous and we could well end up with (if we don’t already have) an interventionist government that is more overweight than its citizens!

 

Moreover, we can already see some signs that the market itself is responding to the problem of obesity in such as a way as to affect consumption incentives. For example life insurance companies are investigating an increase in premiums for the overweight in the same way that increased premiums are charged to smokers. Similarly some airline operators are now charging excess fares to the severely overweight. In addition, job prospects are undoubtedly worse for the obese, thus providing an incentive to change dietary decisions.

 

There are also some welcome signs that eating habits are beginning to change. McDonalds suffered a big fall in sales in 2005/06 and as a result have had to alter their menus and marketing strategies. Many crisp manufacturers have reduced the fat in their product and whilst fizzy drinks have witnessed a declining market share, sales of bottled water and fruit smoothies have rocketed. The difficulty for economists is in measuring to what extent these trends are a direct result of government intervention in the market, and to what extent they would have happened anyway, and will therefore continue to develop, as the result of market forces.

 

Market and Government Failure: The Cutting Edge is available from www.anforme.co.uk and can be accesses by clicking “Economics books” and then “photocopiable books”.

 

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Posted in Obesity, taxation

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