The Distributional Consequences of a Fiscal Food Policy: Evidence From the UK

The extant literature on fat taxes and thin subsidies tends to focus on the overall effectiveness of such fiscal instruments in altering diets and improving health. However, little is known about the welfare impacts of fiscal food policies on society. This paper fills a gap in the literature by assessing the distributional impacts and welfare effects resulting from a tax-subsidy combination on different food groups. Using the methods derived from marginal tax reform theory, a formal welfare economics framework is developed allowing the calculation of the distributional characteristics of various food groups and approximate welfare measures of prices changes caused by a tax-subsidy combination. The distributional characteristics reveal that many of the food groups targeted by a fat tax are consumed in greater concentration by low-income households than higher-income households. The overall welfare effect of a fat tax in isolation is found to be negative. While the inclusion of a thin subsidy still results in welfare losses, the negative impact of the fat tax is mostly mitigated by the presence of the thin subsidy. Results suggest there is scope for the design of a fiscal food policy to combat obesity and poor dietary choice that is both revenue neutral and welfare minimising