Obesity is a real concern in Western nations with prevalence increasing over the last 20 years. In Australia for example, the prevalence of obesity has increased 3-fold since 1980. Obesity is a serious concern because it increases the risk of a number of diseases including cardiovascular disease and type 2 diabetes, and these can be incredibly expensive to treat over the long term. This treatment is expensive because survival times are high but morbidity rates are also high. Generally, the increase in the obesity rates are considered a primary contributory factor in the increased health spending in Western countries. Estimates suggest that health care costs for obesity and obesity related conditions runs at around 1.7 to 3.0 % of total health care spending in European countries and as high as 5 to 10 % in the United States. Reducing the prevalence of obesity of therefore a priority if health care spending is to be decreased. One solution considered by governments to tackle this problem is the implementation of taxes on unhealthy foods.
The causes of obesity are complex, but increasingly the consumption of sugar sweetened soft drinks is being suggested to be a cause of the high obesity rates in the West. The fructose content of the sugars added to soft drinks is thought to be high metabolically damaging and this is thought to increase the risk of developing insulin resistance and obesity significantly. Taxing the unhealthy foods such as sugar is one method that has been suggested to lower sugar intake and thereby control obesity rates. However, the issue is highly complex and it is not clear that taxes offer an effective solution. Studies indicate that sugar sweetened soft drinks have a low price elasticity which ranges from around -0.5 to -1.6 (Larger values under 1 indicate demand is affected strongly by price, smaller values under one indicate demand is less affected by price). Based on this soft drinks have a higher elasticity in price than tobacco (-0.2 to -0.6) and petrol (-0.02 to -0.04) suggesting that price increases could decrease consumption of sugar.
However, in Australia sugar consumption has decreased since 1980, and yet during the same time, obesity rates have increased. In the United Kingdom, obesity rates have followed a similar trend, and yet sugar consumption has not increased. What is clear is that expecting obesity rates to fall as sugar consumption declines may be too simplistic an understanding of the relationship between the two. It could be for example, that obesity and sugar consumption does not follow a linear trend. There might be a threshold of consumption that increases the risk of obesity, and reductions in intake that allow the total intake to remain above this level, may have little or no effect. Also evidence suggests that when demand for one product falls, it is replaced by other products, and as such total energy intake is not changed significantly. If the substituted product also contains sugar, this could negate any effects of a tax. A number of economic reviews of taxation of unhealthy foods have therefore questioned the effectiveness of this approach.
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