Let them eat cake? The net welfare impacts of a fat tax

When judging the distributional impact of a sin tax, what matters is not just how much low income people would pay but how much the tax would benefit or harm them overall. In this paper, we assess the consumer welfare impact of a fat tax net of its expected benefits computed as savings from lost weight. We use Italian data to estimate a censored Exact Affine Stone Index (EASI) incomplete demand system for food groups and simulate changes in purchases, calorie intake, consumers’ welfare and the monetary value of the tax’s short run health benefits. Our results suggest costs from taxation are larger than benefits at all income levels. As a fraction of income, the net impact would be slightly regressively distributed.