Paternalistic Taxation of Unhealthy Food and the Intensive versus Extensive Margin of Obesity

By Zarko Kalamov and Marco Runkel

Obesity is one of the most pressing health problems worldwide. For example, in the US more than one third (38.2%) of the population aged 15 years and over is obese, i.e. has a body mass index (BMI) larger than 30 kg/m2. Similar high obesity rates are observed in Mexico (32.4%), New Zealand (30.7%), Hungary (30.0%), and Australia (27.9%). The average obesity rate in OECD countries is 19.5% and is expected to increase further in the coming years. 

As a countermeasure against obesity and overweight, many countries have implemented taxes on unhealthy food, including, for instance, soda taxes in France, Hungary, Mexico, Ireland and the UK, the sugar tax in Norway, and the fat tax in Denmark. The economic rationale behind such taxes is the view that consumers make mistakes in their choice to overconsume unhealthy food. This leads to a paternalistic role for the governments to correct these mistakes.

In this project, BCCP Fellows Zarko Kalamov and Marco Runkel investigate whether the choice to be obese can indeed be a mistake and what are the bounds to the paternalistic role of governments. Individuals choose calorie-rich food consumption by balancing between two goals: a healthy level of consumption and a desired level of consumption. Only when the latter is larger than the former does an individual become obese. However, there is no justification to call a high desired consumption level a mistake and use it to justify paternalistic policy. 

However, people might make mistakes by putting greater weights on the desired consumption relative to the healthy consumption due to impulsive behavior. Such behavior is later regretted by individuals as it leads to higher than desired obesity. In such cases, there is a paternalistic role for the government and a tax on unhealthy food should be introduced. However, it should be limited and only correct the increase in obesity due to impulsive behavior and not aim to eradicate obesity in society.  

The full research paper is available as CESifo Working Paper No.6911 (open access pdf download).