Use of Diversion Ratios in Addressing the Consequences of Tax Policies Associated with Non-alcoholic Beverages

Monthly data derived from the Nielsen HomeScan Panel for calendar years 1998 through 2003 are used to estimate quantity-wise and calorie-wise effects of a tax on sugar-sweetened beverages and bottled water. Quantity diversion ratios and caloric diversion ratios are provided identifying where the volumes and calories respectively, of the sugar-sweetened beverages and bottled water are directed as a result of the tax policy. As far as the movement in terms of volume, a tax on isotonics, regular soft drinks, and fruit drinks would increase the consumption of coffee, likely leading to increases of caffeine intake, a potentially unintended consequence. Moreover, a tax on those sugarsweetened beverages would increase the consumption of fruit juices, also an unintended consequence because of the calories associated with beverages containing natural sugars. Also, the reduction in bottled water consumption is mainly replaced by an increase in consumption of tea and diet soft drinks, potentially increasing caffeine intake. As far as the movement in terms of calories is concerned, a loss of calories due to reduction of intake of isotonics, regular soft drinks and fruit drinks through this tax policy is replaced by calories from consumption of fruit juices and milk, thereby contributing more calories to the diet. Therefore, it is desirable to consider quantity-wise and calorie-wise movement of non-alcoholic beverage consumption when evaluating the consequences of tax policies on beverages, not only dealing with health related-issues but also environmental concerns.