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Article

The Economics of Diet and Obesity: Public Policy  

Fabrice Etilé

The rise in obesity and other food-related chronic diseases has prompted public-health officials of local communities, national governments, and international institutions to pay attention to the regulation of food supply and consumer behavior. A wide range of policy interventions has been proposed and tested since the early 21st century in various countries. The most prominent are food taxation, health education, nutritional labeling, behavioral interventions at point-of-decision, advertising, and regulations of food quality and trade. While the standard neoclassical approach to consumer rationality provides limited arguments in favor of public regulations, the recent development of behavioral economics research extends the scope of regulation to many marketing practices of the food industry. In addition, behavioral economics provides arguments in favor of taxation, easy-to-use front-of-pack labels, and the use of nudges for altering consumer choices. A selective but careful review of the empirical literature on taxation, labeling, and nudges suggests that a policy mixing these tools may produce some health benefits. More specifically, soft-drink taxation, front-of-pack labeling policies, regulations of marketing practices, and eating nudges based on affect or behavior manipulations are often effective methods for reducing unhealthy eating. The economic research faces important challenges. First, the lack of a proper control group and exogenous sources of variations in policy variables make evaluation very difficult. Identification is challenging as well, with data covering short time periods over which markets are observed around slowly moving equilibria. In addition, truly exogenous supply or demand shocks are rare events. Second, structural models of consumer choices cannot provide accurate assessment of the welfare benefits of public policies because they consider perfectly rational agents and often ignore the dynamic aspects of food decisions, especially consumer concerns over health. Being able to obtain better welfare evaluation of policies is a priority. Third, there is a lack of research on the food industry response to public policies. Some studies implement empirical industrial organization models to infer the industry strategic reactions from market data. A fruitful avenue is to extend this approach to analyze other key dimensions of industrial strategies, especially decisions regarding the nutritional quality of food. Finally, the implementation of nutritional policies yields systemic consequences that may be underestimated. They give rise to conflicts between public health and trade objectives and alter the business models of the food sector. This may greatly limit the external validity of ex-ante empirical approaches. Future works may benefit from household-, firm-, and product-level data collected in rapidly developing economies where food markets are characterized by rapid transitions, the supply is often more volatile, and exogenous shocks occur more frequently.

Article

Taxation in the Open Economy  

Kimberly A. Clausing

The international mobility of capital presents important tax policy challenges, as the scope of economic activity exceeds the reach of national governance. Consequently, countries’ tax policy choices have important spillover effects outside of their own borders. For example, in the context of mobile multinational companies, countries that charge high tax rates may benefit their trading partners by increasing the competitiveness of their companies, while countries lowering tax rates have negative consequences for the competitiveness of trading partners’ firms. Further, countries’ noncooperative tax policy choices may entail too low tax rates (and too lax tax regimes), since they do not fully internalize the negative consequences of their choices on their partners, nor do they account for the dynamic effects of their choices on policy evolution abroad. Climate policy also generates important spillovers. Since greenhouse gas emissions are a truly global externality and the benefits of any mitigation policy action are only partially captured by the government undertaking the effort, countries will have an incentive to free ride on the efforts of others. Beyond this free-riding problem, there are also competitiveness spillovers. For example, governments imposing costs on their emissions-intensive firms put them at a disadvantage relative to firms abroad, whereas governments subsidizing clean energy advantage their energy-intensive firms in the competitive marketplace. This dynamic makes it more difficult for countries to adopt cost-imposing policies. Both of these policy spheres demonstrate the value of international tax policy coordination. The international tax agreement of 2021, in the process—as of 2023—of being implemented across the world, provides one possible model for enhanced coordination. So far, international climate policy lacks a similarly strong coordinated policy effort, but possible models include building from the European Union’s proposed carbon border adjustment and considering adoption of a climate club.