There is policy interest in using tax to change food purchasing behaviour. The literature has not accounted for the oligopolistic structure of the industry. In oligopoly the impact of taxes depend on preferences, and how firms pass tax onto prices. We consider a tax on saturated fat. Using transaction level data we find that the form of tax and firms' strategic behaviour are important determinants of the impact. Our results suggest that an excise tax is more efficient than an ad valorem tax at reducing saturated fat purchases and an ad valorem tax is more efficient at raising revenue.
Authors
CPP Co-Director, IFS Research Director
Rachel is Research Director and Professor at the University of Manchester. She was made a Dame for services to economic policy and education in 2021.
cemmap co-Director University College London
Lars Nesheim is a Professor of Economics at UCL and Co-Director of the Centre for Microdata Methods and Practice (cemmap).
Research Fellow University of Wisconsin
Martin, previously Deputy Research Director, is a Research Fellow at IFS and Professor of Economics at the University of Wisconsin.
Working Paper details
- DOI
- 10.1920/wp.cem.2010.3710
- Publisher
- IFS
Suggested citation
R, Griffith and L, Nesheim and M, O'Connell. (2010). Sin taxes in differentiated product oligopoly: an application to the butter and margarine market. London: IFS. Available at: https://ifs.org.uk/publications/sin-taxes-differentiated-product-oligopoly-application-butter-and-margarine-market (accessed: 30 June 2024).
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