Consumer behaviour

This briefing note provides estimates of the falls in consumer prices that could be expected if the UK leaves the EU's Customs Union and reduce its tariffs. It finds that even if all tariffs were abolished, any reduction in consumer prices would be more than offset by the 2% increase in prices that have resulted from the post-referendum depreciation of sterling.

In an influential paper, Deaton and Paxson (1998) raise an important puzzle inunderstanding returns to scale in household consumption. They note that, holding percapita resources constant, returns to scale (in at least some goods) imply that larger households are better off, and so should consume more of private goods such as food. However, they document in a range of data sets that larger households have lower per capita food expenditures (holding per capita resources constant).

The Hamilton method for estimating CPI bias is simple, intuitive, and has been widely adopted. We show that the method conflates CPI bias with variation in cost-of-living across income levels.

Following a recent judgment, the UK Supreme Court confirmed that Scottish Government legislation for a minimum unit price for alcohol is lawful. The Scottish Government plans to introduce the measure on 1 May 2018. Meanwhile, the Welsh National Assembly is considering introducing a minimum unit price for alcohol. In this briefing note, we provide evidence on the likely impact of this type of reform.

CEPR Discussion Paper DP12499

We study optimal corrective taxation in the alcohol market. Consumption generates negative externalities that are non-linear in the total amount of alcohol consumed. If tastes for products are heterogeneous and correlated with marginal externalities, then varying tax rates on different products can lead to welfare gains.

Soda taxes aim to reduce excessive sugar consumption. Their effectiveness depends on whether they target individuals for whom the harm of consumption is largest. We estimate demand and account for supply-side equilibrium pass-through. We exploit longitudinal data to estimate individual preferences, which allows exible heterogeneity that we relate to a wide array of individual characteristics. We show that soda taxes are effective at targeting young consumers but not individuals with high total dietary sugar; they impose the highest monetary cost on poorer individuals, but are unlikely to be strongly regressive if we account for averted future costs from over consumption.

We present evidence from a natural field experiment designed to shed light on whether individual behavior is consistent with a neoclassical model of utility maximization subject to budget constraints.

Corrective taxes have been implemented in a number of countries with the aim of addressing growing concern about the rise in obesity- and diet-related diseases. The rationale is that food consumption imposes costs on the consumer in the future that they do not fully take into account at the point of consumption (‘internalities’). Corrective taxes have the potential to improve welfare by reducing suboptimally high consumption. We review the literature on the size of these internalities and on the optimal corrective tax, which depends on the patterns of internalities, the price responsiveness of consumers, and on redistributive aims.

Paper forthcoming in Quantitative Economics.

Divided by choice? Private providers, patient choice and hospital sorting in the English National Health service

The exposure of households’ food spending to tariff changes and exchange rate movements

Consideration set models relax the assumption that consumers are aware of all available options.

We develop a new quantile-based panel data framework to study the nature of income persistence and the transmission of income shocks to consumption.

There have been calls for restrictions on junk food advertising to tackle rising rates of obesity around the world. This column examines the likely effect of a ban on potato crisp advertising. Results suggest that the total quantity of crisps sold would fall by around 15% in the presence of a ban, or by 10% if firms respond with price cuts. The welfare benefits from this would depend on whether current advertising is persuasive, informative or complementary.

Governments have long used taxation to correct for the socially costly overconsumption of alcohol, but as the external cost of overconsumption varies across drinkers, a single tax rate is not optimal. This column argues that variation in preferences for different products and in price responsiveness across heavy and light drinkers provides scope to improve welfare by varying tax rates across alcohol products. The proposed framework is well suited to addressing other sources of external costs, such as obesity.

There are growing calls to restrict advertising of junk foods. Whether such a move will improve diet quality will depend on how advertising shifts consumer demands and how firms respond. We study an important and typical junk food market – the potato chips market.