The Role of Corrective Taxes in Tackling Obesity and Related Public Health Disorders

Policy Context

Obesity significantly increases the risk of death from non-communicable diseases, causing immense human suffering, draining public health resources, and reducing economic productivity. In South Africa, one of the most affected countries in the developing world, over half of adults are overweight or obese. Obesity is the fifth leading risk factor for early death in the country—measured in terms of disability-adjusted life years (DALYs)—behind only unsafe sex, violence, alcohol, and tobacco (Norman et al. 2007). Women and economically disadvantaged groups suffer disproportionately from higher obesity rates.

South Africa is a regional leader in generating evidence on public health and tax policy issues, yet its government has publicly acknowledged that “limited published evidence [exists] about the effectiveness of [measures] to reduce obesity”. This study aims to fill this evidence gap by investigating the effects of South Africa’s sugar tax on important health and economic outcomes.

Study Design

The research team will leverage the introduction of the Health Promotion Levy in South Africa as a natural policy experiment. The levy was implemented on April 1 2018, and it targets beverages with sugar exceeding 4 grams per 100 milliliters. Importantly, fruit juices and milk-based beverages are exempt from the levy. Given its structure, the policy lends itself naturally to a difference-in-difference research design, where the team will compare the production and consumption of treated beverages (accessible through data provided by a grocery chain in South Africa) with untaxed products that are not clear substitutes or complements.

The team will then match this data with data from the National Treasury of South Africa, allowing access to administrative data comprising the universe of VAT, excise, and customs declarations. The matching of the two datasets will allow the team to answer five research questions:

1. Did the levy cause a reduction in the consumption and production of sugary drinks and, if yes,
   by how much?
2. Did the treated firms shift towards healthy alternatives by reducing the content of sugar, by
   using artificial sweeteners, or by other strategies (such as advertising untaxed products more
   aggressively)?
3. What are the distributional implications of the levy? Does its incidence fall predominantly on
   the poor relative to the rich?
4. How are the behavioral biases that are associated with sugar consumption, specifically,
   temptation and lack of self-control, distributed across the rich and the poor?
5. Did the reduction in the consumption of sugary drinks and shift towards healthy alternatives
   reduce the incidence of obesity and improve health outcomes including cardiovascular diseases, diabetes, and hypertension?

Results and Policy Lessons

Forthcoming.