Heterogeneous Welfare Effects of Corrective Taxes: Evidence from South Africa’s Soda Tax

Abstract

Sin taxes are increasingly being used to discourage the consumption of internality-producing goods. A major concern with sin taxes is that they are regressive. But the behavioral biases they seek to correct may also be concentrated among the poor. The welfare consequences of sin taxes are therefore not clear, depending inter alia on the distribution of the demand elasticity and behavioral bias in the population. In this project, we intend to exploit the introduction of the Health Promotion Levy to estimate the extent and distribution of welfare gains created by a representative sin tax. We will extend the framework of Allcott et al. (2019) to allow imperfect pass-through of the levy. Combining administrative data from CIT, VAT, and Customs records with survey data and using event-study and difference-indifferences research designs we will then estimate the parameters required to assess how the levy affected the welfare of poor and rich in South Africa.

Researcher

1. Timotej Cejka

University of Chicago Booth School of Business

Email: timotej.cejka@chicagobooth.edu.

2. Mazhar Waseem

University of Manchester

Email: mazhar.waseem@manchester.ac.uk