An excise tax on non-alcoholic beverages: a rational addiction approach
Date
2007-10
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Abstract
This study, using aggregate time-series data, estimates the demand for non-alcoholic beverages in the Philippines following the rational addiction framework of Becker and Murphy (1988). Analysis of the economic incidence of the VAT on non-alcoholic beverages shows that low income households are less burdened by the VAT levied on non-alcoholic beverages compared with sin products such as cigarettes and alcohol. Regression results also ·show that non-alcoholic beverage consumers are forward-looking. Consistent with the rational addiction theory, past and future consumptions significantly affect present consumption. Short- and long-run price elasticities are also calculated. In the short run, demand is price-inelastic; however, in the long run, the demand seems to be more price- responsive. It may take time for the goals of a sumptuary tax on non-alcoholic drinks to take effect. The rationale of a sumptuary tax on non-alcoholic beverages to limit the consumption of the discouraged commodity appears to have basis.
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Keywords
Excise tax, Taxation, Non-alcoholic beverages, Manufacturing industry, Food industry, Beverages industry