People are obviously getting more and more fat. This fact cannot be denied. That is why, to curb this phenomenon, Kelly Brownell launched the idea of applying a fat tax on unhealthy food, in his article published in the New York Times in 1994. Such a tax could encourage people to buy less unhealthy food. From then on, the point is to analyze the tax features and its effects on general consumption. First, I will focus on the way of applying a new tax on fat products, studying the two goods market, vegetables and ice-cream, presented here. Then I will try to explain what effects the tax could generate on the consumption of these two goods. By doing so, it will help me to show that a fat tax could be a good way to prevent people from buying unhealthy food.
[...] Brownell has proposed two options: either a big tax, between and in order to discourage people from buying junk food, or a smaller one which could help to raise government's revenue. Furthermore, some economists have also proposed to apply the Value Added Tax of 17,5% on fat products. On the other hand, the tax could be applied either on the producer or on the consumer. This is a tricky decision, because if the tax is applied on the producer, hence it could absorb a part of the tax by reducing the price sell its extra supply-, would undermine the efficiency of a fat tax. [...]
[...] On the other hand, ice-cream can also be a necessity when the income-elasticity is positive: in this case, the demand for ice-cream must rise in a smaller proportion of people's income, which is to say between 0 and 1. This is also called a normal good. But considering these two cases, does it mean that ice-cream is a necessity? Assuming that richer people spend a smaller proportion of their income on ice-cream than poorer people, it first means that their budget share devoted to ice-cream will fall. [...]
[...] Indeed, the two effects work against each other: on one hand, the income effect will affect people's income they can buy less-, and on the other hand, the substitution effect will encourage people to buy more vegetables. Thus, this analysis has shown that the fat tax could be a solution to fight against obesity, because it could economically prevent people from buying fat products. However, like a journalist from the Economist said in 2003: “Society has a legitimate interest in fat, because fat and thin people both pay for it. [...]
[...] We would like to know if taxing ice-cream would encourage people to buy more vegetables. From then on, we first need to know whether these two goods are complements or substitutes. The relevant concept that we should use to clear this out is the cross-price elasticity analysis. Indeed, this is the only way to differentiate complements from substitutes. In short words, if a rise in the price of a good generates an increase in demand for another good, these two goods would be substitutes and the cross-price elasticity would be positive. [...]
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