Taxing Unhealthy Consumption: Evidence from the Fat Tax in Kerala, India
Many countries have enacted taxes on sugar-sweetened beverages (SSBs) to reduce consumption and promote healthy eating. However, evidence on the use and effect of such taxes in developing countries is limited. This paper examines the effect of the Fat Tax on junk foods sold in restaurants by the Indian state of Kerala. Using a difference-in-difference approach and two neighboring states as controls, we see that this tax reduced household expenditure on restaurant consumption and the share of expenditure on restaurant food. Our results are robust to different specifications and alternative estimation samples. Our analysis suggests that the fat tax may have the potential to reduce spending on unhealthy food purchases.
Jointly by Pushkar Maitra and Nidhiya Menon