Taxes on Unhealthy Food and Externalities in the Parental Choice of Children's Diet

By Zarko Kalamov and Marco Runkel

Childhood obesity is widespread in many countries. In the OECD, the prevalence of obesity among children is 15.5%. Child obesity causes high health care costs and is associated with adult obesity as well as multiple morbidities in adulthood.

Most of the theoretical studies on the taxation of unhealthy food focus on the effects of these taxes on adult obesity. The scarce existing literature analyzing the impact of taxes on unhealthy food on the intergenerational transmission of obesity assumes that parents are nonaltruistic and neglect the impact of their own choices on the future health of their children. It finds that there is a tax on unhealthy food that fully corrects for the negative effects that parents ignore, thus leading to a first-best situation.

In this paper, BCCP Fellows Zarko Kalamov and Marco Runkel develop a different theoretical framework to analyze how a tax on unhealthy food can be applied to address child obesity. They analyze a situation where parents may only partially neglect the future health costs of unhealthy consumption by their children.

The paper shows that it is optimal for a government to tax unhealthy food, even if parents ignore only a small part of the future health costs of their children. However, the optimal tax cannot, in general, fully correct the ignored costs. The reason is that the tax also distorts adult consumption, as well as consumption of children with fully altruistic parents.

These results show that taxing unhealthy food is insufficient to fully address the problem of child obesity. Other measures targeting child consumption should be implemented in conjunction with taxes. Such measures may include subsidies for childhood sports activities, providing information about the negative effects of child obesity, introducing mandatory product information in supermarkets, and using nudges to promote healthy consumption in schools.  

The full paper “Taxes on Unhealthy Food and Externalities in the Parental Choice of Children’s Diet” is published in Health Economics.

This text is jointly published by BCCP News and BSE Insights.