Consumption Responses to an Unpopular Policy: Evidence from a Short-Lived Soda Tax
Abstract
Public policies that restrict or intervene in consumer choices are often controversial. We investigate whether consumers’ disagreement with a policy affects how they respond to that policy using a natural experiment in Washington state, where a consumption tax on soda was repealed by popular ballot. We use data on precinct-level voting and shoppers’ home locations to create a novel measure of grocery store–level tax opposition. We then combine this measure with price and quantity data from grocery stores statewide. Leveraging a difference-in-differences research design in which we instrument for tax opposition, we show that, in response to the short-lived Washington state soda tax, stores frequented by tax opponents experience a 53% greater reduction in quantity sold of taxed beverages compared with stores frequented by tax supporters even though the tax pass-through is generally uniform across all stores. Our mechanism analysis is consistent with an oppositional behavioral response, in which upset consumers decrease consumption more strongly to avoid the tax burden. If this behavioral response is not taken into account, the optimal tax rate may be set too high, resulting in lower tax revenue.
History: Catherine Tucker served as the senior editor.
Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mksc.2022.0230.
