Economics Homework Help

Article 1: Taxing sugary drinks would boost productivity, not just health

Taken from: http://theconversation.com/taxing-sugary-drinks-would-boost-productivity-not-just

health-79410

Many studies have looked at the potential benefits of a sugar tax in terms of the longer, healthier

lives and reduced health expenditure associated with tackling obesity.

But our new study goes one step further. It predicts that higher taxes on sugar-sweetened drinks will

benefit the wider economy through increased economic productivity, by having more, healthier people

in paid and unpaid work.

Obesity delivers a double whammy

A total of 63% Australian adults and one in four children are overweight or obese, making this both a

health and an economic problem.

Obesity increases the risk of diseases including cancer, diabetes, heart disease and stroke. Obesity has

also been estimated to cost Australia about A$8.6 billion a year or more. Not only does obesity drive

up health-care costs, by causing illness and premature death, it also reduces people’s ability to work

and contribute to the economy.

Added sugar contributes energy to the diet, but no useful nutrients. Increasingly, health experts suggest

we should be treating sugar, and in particular sugar in soft drinks, as we do tobacco or alcohol, by

taxing it to reduce consumption and so reduce obesity rates.

Taxing sugar is not a new concept. In the 1700s, Scottish economist Adam Smith wrote in An Inquiry

into the Nature and Causes of the Wealth of Nations:

Sugar, rum, and tobacco, are commodities which are nowhere necessaries of life, which are

become objects of almost universal consumption, and which are therefore extremely proper

subjects of taxation.

Smith’s proposal to tax sugar was not aimed at improving health, as it is today. Now organisations like

the World Health Organisation, the Australian Medical Association and many non-governmental

organisations are advocating a tax on drinks with added sugar, as part of wider efforts to tackle obesity.

What we did and what we found

…Page 2 of 8

Our results show that a 20% sugar tax would mean about 400,000 fewer people would be obese. Three

quarters of these would be in the workforce, so that about 300,000 fewer employed people would be

obese.

Over the lifetime of the adult population of Australia in 2010, this would add about A$750 million to

the formal, paid economy, due to more, healthier people producing more goods and services.

The gains in unpaid work were even larger at A$1.17 billion. Fewer obese people means more healthy

people, who have a greater likelihood to do unpaid work, in the household or as volunteers.

These indirect economic benefits from increased employment in the workforce and from greater

participation in unpaid work were larger than the savings in health care costs, which we estimated at

about A$425 million over the lifetime of the adult population.

In all, the tax could deliver over A$2 billion in economic benefits in indirect economic benefits plus

health care savings. And that does not even include the value of the gains in people’s quality of life

and how long they lived.

The exact size of the benefits depend on assumptions about what people would drink (and eat) if they

drink fewer sugared drinks. In this study, we used Australian evidence that found an increase only for

diet drinks, which contain virtually no energy.

Other evidence finds a sugar tax reduces the consumption of sugar and energy-rich foods, but may also

lead to people eating fewer fruit and vegetables and more salt. This would reduce the health benefit,

and that study suggests it would be even better to tax all sugar instead of only sugared drinks.

Questions (1) to (2) are based on the following:

Adam Smith proposed taxing ‘sugar, rum and tobacco’ because they are:

i. ‘nowhere necessaries of life’

ii. ‘objects of almost universal consumption’