Economics Assignment on Sugar Tax: Rationale, Arguments and Evaluation

Running Head: ECONOMICS ASSIGNMENT
Economics Assignment
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1ECONOMICS ASSIGNMENT
Table of Contents
Introduction......................................................................................................................................2
Rationale for introducing sugar tax.................................................................................................2
External cost................................................................................................................................2
Demerit goods..............................................................................................................................3
Raises Revenue............................................................................................................................4
Shift in consumption and supply.................................................................................................4
Argument against sugar tax.........................................................................................................4
Greater burden on lower income group.......................................................................................5
Job losses.....................................................................................................................................5
Tax is not the best way to reduce consumption...........................................................................5
Evaluation of a sugar tax.................................................................................................................5
Conclusion.......................................................................................................................................7
References........................................................................................................................................8

2ECONOMICS ASSIGNMENT
Introduction
Excessive sugar intake is associated several health hazard such as diabetes, obesity, tooth
decay and such others. Unrestricted consumption of sugar inflicts cost on individual in terms of
lowering life expectancy. The cost not only limited to individual but also an external cost is
borne by the society. Society bears a cost in forms of a higher cost of health care and lower
productivity. A sugar tax is introduced to reduce consumption of sugar as a tax is expected to
discourage consumption (Tselengidis and Ostergren 2018). The revenue collected from the tax
can further be used for funding health care service. The case study discusses economic
arguments for introducing a sugar tax.
Rationale for introducing sugar tax
Implementation of a sugar tax is based on several economic rationales. The main
arguments in favor of sugar tax are given as follows
External cost
Sugar sweetened drinks have an external cost on the society. The excessive consumption
of sugar lead to several health problems including Diabetes particularly type 2 diabetes, obesity
and other illness related with obesity like heart diseases, back pain and tooth decay mostly
prevalent among people. External cost from overconsumption of sugar sweetened beverages is
reflected from a higher public expenditure for health care. The poor health condition adversely
affects productivity of workers (Backholer and Martin 2017). The social marginal cost of sugar
consumption thus exceeds that of the private marginal cost. The effect of a higher social
marginal cost is illustrated in the following figure.