How a Soft Drink Tax Can Contribute to a Healthier Population

Overweight and obesity are on the rise worldwide and not only have a negative impact on the health and quality of life of those affected, but also cause high economic costs. Since the 1970s, obesity rates have almost tripled worldwide, which is why the World Health Organization (WHO) has been talking about an “epidemic” since the 1990s. In Germany, around 60 percent of adults are currently overweight (BMI>25), with 25 percent being obese (BMI>30). Among children and adolescents, the proportion is 15 percent, with 6 percent being obese. The increased incidence of overweight and obesity leads to an increase in secondary diseases, including type 2 diabetes (T2D), cardiovascular disease (CVD), certain types of cancer, musculoskeletal disorders and psychological strain.

A major contributor to this epidemic is the excessive consumption of sugary drinks (sugar sweetened beverages – SSB), which due to their high sugar content can lead to excessive calorie intake and in the long term to metabolic disorders. Governments are increasingly looking for effective measures to counteract this trend, with one promising strategy being the taxation of soft drinks. The aim of such a tax is to reduce consumption, encourage the population to choose healthier alternatives and thereby reduce the risk of obesity and other secondary diseases such as T2D.

According to a new study, Latin America and the Caribbean is the world region in which excessive consumption of sugary drinks has contributed most to the prevalence of secondary diseases such as diabetes and CVD (T2D: 24.4%; CVD: 11.3%), ahead of sub-Saharan Africa (T2D: 21.5%; CVD: 10.5%). The greatest increase between 1990 and 2020 was observed in sub-Saharan Africa (T2D: +8.8%, CVD: +4.4%). As a result of this growing health problem, over 100 countries and regions worldwide have now introduced a soft drink tax, as illustrated by Figure 1.

Figure 1: Countries that have introduced a national or regional soft drink tax

The consequences of sugary drinks for health

Soft drinks provide “empty calories”, which means they have a high energy density but no fiber or significant nutrients such as protein or fat that contribute to feeling full or sated. Unlike solid foods, which activate the satiety center in the brain, liquid calories often cause people to unconsciously consume more calories than they actually need. Numerous studies have shown that a high consumption of soft drinks is associated with weight gain and an increased risk of obesity.

Soft drinks can also lead to T2D in several ways. Firstly, they contain a high amount of added sugar, which enters the bloodstream very quickly and leads to a sudden rise in blood sugar levels, which in turn leads to the release of insulin. If large amounts of sugar are consumed regularly, this can lead to insulin resistance – a condition in which the body's cells react less sensitively to insulin, which keeps blood sugar levels elevated in the long term. This process favors the development of type 2 diabetes. Secondly, excessive consumption of soft drinks as described above can lead to weight gain and ultimately obesity, which in turn increases the risk of T2D.

How a soft drink tax affects consumption

The initial aim of taxing soft drinks is to increase their price and thus reduce demand. The tax can be calculated as an ad valorem tax, i.e. as a certain percentage of the price, as is the case with VAT, for example. This type of tax has the advantage that it increases automatically as prices rise. Another option is an excise tax, which is typically calculated by volume. This type of tax has the advantage that the tax per liter of a drink is always the same, regardless of the price of the drink, which largely prevents a switch to a cheaper but equally unhealthy product. However, tax rates should then be increased as prices rise so that the tax remains financially relevant.

All types of taxes are based on the principle of price elasticity, according to which consumers buy less of a product when its price rises. Experience from countries that have already introduced a soft drinks tax confirms this correlation. For example, researchers were able to show that following the introduction of a soft drink tax in Mexico in 2014, the consumption of soft drinks fell by 7.6 percent within a year of the introduction of the tax, while sales of unsweetened drinks such as water increased.

In addition, researchers in the UK were able to show that a tax can have an impact not only on consumption behavior, but also on the sugar content of drinks. In 2018, the UK introduced a tiered sugar tax. Tiered taxes are calculated depending on the sugar content: The more sugar a drink contains, the higher the tax levied. Studies show that, in response to this type of tax, manufacturers in the UK reduced the sugar content of many drinks to avoid the tax or to achieve a lower tax rate.

These reformulations resulted in consumers automatically consuming less sugar without having to fundamentally change their purchasing behavior. This shows that a soft drink tax not only influences purchasing behavior, but can also bring about structural changes in the food industry by providing incentives for companies to develop healthier alternatives.

Not only in the UK and Mexico has the taxation of sugary drinks proven to be an effective tool for reducing the excessive consumption of sugar via soft drinks. A comprehensive meta-analysis in 2022 examined the effects of soft drink taxes that had been implemented in over 45 countries and found that they were associated with an average 15 percent decrease in SSB sales. The price elasticity of demand was -1.59, meaning that a 10 percent increase in price led to a decrease in consumption of around 16 percent.

How a soft drink tax affects health

The previous sections can be summarized into the following three findings:

• Excess consumption of sugar via soft drinks is associated with an increased risk of obesity and other diseases.
• Taxes on soft drinks can reduce their consumption.
• Reduced consumption of soft drinks lowers the prevalence of obesity.

Even though these findings suggest that a soft drink tax can reduce the prevalence of obesity, there are so far only limited observational studies that evaluate the long-term direct impact of soft drink taxes on health. One of the reasons for this is that these health effects usually only manifest themselves after some time has passed. Long-term studies are required to assess the actual impact on the prevalence of obesity and T2D, for example.

Furthermore, such studies are susceptible to confounding – i.e. distortion due to other factors that are related to both sugar consumption and its consequences for health and are difficult to measure (e.g. the consumption of other foods that are harmful to health). These difficulties mean that direct evidence of the long-term effects of a soft drink tax on the reduction of overweight and obesity is still limited.

The authors of two reviews with meta-analyses, one from 2013 and the one mentioned above from 2022 also reached this conclusion. Of the studies reviewed, a few recorded small decreases in BMI after the introduction of such taxes, but other studies showed no significant effect on body weight or even a small increase in BMI. However, the authors of both studies explain that this is probably more due to the study designs than to the actual effects of a tax, especially since the studies reviewed generally examined regionally limited VAT increases, as nationwide consumption or excise taxes were only introduced later. Long-term studies are needed here, and data should be collected now and in the coming years.

However, while the earlier review still suggests that a soft drink tax could lead consumers to switch to other calorie-containing drinks, such as fruit juices and milk drinks, this effect is no longer seen in the more recent 2022 review.

Another link between soft drink taxes and health is less contradictory: A study from Mexico showed that the introduction of the soft drink tax was associated with a significant decrease in the incidence of tooth decay.

The role of modelling studies

As the link between increased consumption of soft drinks and rising obesity rates is considered proven, researchers assume that this mechanism can also work in the opposite direction. Based on this assumption are so-called modelling studies which simulate the long-term effects of soft drink taxes on various indicators. Among other things, these models use existing data on the price elasticity of demand and estimate what health effects tax measures could have.

One such study carried out for Germany calculated that a 20 percent price surcharge on soft drinks could prevent 31’600 cases of obesity over the next 20 years – and as many as 159’400 cases if fruit juices were also taxed. According to the study, a tiered tax, based on the British tax model, could prevent 72’300 cases of obesity.

What matters

These results make it clear that soft drink taxes can, in principle, be an effective means of curbing the global obesity epidemic. However, the WHO emphasizes that the health benefits of such taxes depend largely on factors such as tax design and complementary policy measures. In order to have the best possible positive impact on health, the WHO recommends a volume-based excise tax that is applied to a wide range of sugar-sweetened beverages, including fruit juices, iced teas, energy and sports drinks, sweetened milk and yogurt drinks, and concentrates, syrups and powders for mixing drinks. Tiered tax rates can promote reformulation in the industry, i.e. new recipes with less sugar, but are administratively more complex to implement. Although the WHO recognizes the potential of such tax models, it has not yet issued a clear recommendation for graduated taxes due to the limited number of studies available.

A combination of taxation, better food labelling (e.g. warning labels on the front of packaging), advertising restrictions for unhealthy foods, increased availability of healthy alternatives and their subsidization could further increase the effectiveness of such measures.

Anna Leibinger is a PhD Candidate and Research Associate at the Chair of Public Health and Health Services Research, IBE, Faculty of Medicine, LMU Munich and at the Pettenkofer School of Public Health, Munich, Germany.