As governments struggle to address the rising prevalence of obesity and other chronic diseases there have been increasing calls for taxation on selected foods as a means of improving the quality of national diets. Last year Denmark introduced the world’s first ‘fat tax’, but in an abrupt turnaround the much maligned tax has been repealed. What went wrong?
Targeted taxation of foods
The rationale for targeted taxation of foods to improve health draws on the fundamental economic principle that the demand for any good is related to its price. If the price goes up, the demand goes down, and vice versa. Hence the demand for goods is said to be ‘elastic’. Viewed through this prism, addressing diet-related chronic disease becomes straightforward – use the tax system to increase the price of junk foods and lower the price of healthier foods. Too easy.