A fast food tax? Not so fast

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The possibility of a new tax on fatty and unhealthy foods may be very real in the United States and other European countries. The idea behind the new tax is twofold: firstly, countries hope to regain additional costs in healthcare caused by obesity related diseases, and secondly to affect behavior so as to discourage the consumption of fatty foods. More specifically, in the United States the tax would be put into place to fund public healthcare expansion. Is the tax justifiable or is it simply a way increasing government control in the private sector?

Although it may be easy for government officials to sell this idea to the general public by claiming that if fast food is more expensive you will eat less of it, in reality it is a but more complicated. The idea that fast food is a normal good is false. In fact, it has been found in almost all circumstances to be an inferior good, meaning that if the price of that good increases so will the demand for that same good. Inferior goods are unique in that they appeal more to low-income individuals because of how easy they are to access and also because of their price. As low-income individuals are able to increase their income they are therefore able to substitute out of fast food and into better types of food which are more expensive. If the price of healthier foods increases they will be forced to substitute back into fast food; however, if an individual is currently dividing his or her disposable income between both healthy and unhealthy foods and the price of unhealthy foods increases then in order to maintain their current overall consumption they must shift exclusively into fast food and spend no money on healthy foods, therefore increasing demand and consumption of unhealthy foods which are still comparatively cheaper than their healthy counterparts.

A study out of Tulane University confirmed the fact that fast and fatty foods are indeed correlated with low-income areas. The government also knows about the ineffectiveness of altering behavior by taxing inferior goods, but they are easy targets to line their pockets. Attacking a product that everyone knows is unhealthy is politically easy, and it is also useful in pulling the wool over the public’s eyes while government programs continue to creep more and more into the private lives of its citizens.