Article:

Belluz, Julia. "In a Devastating Blow to the Beverage Industry, 4 Cities Passed Soda Taxes."
Vox. Vox, 09 Nov. 2016. Web. 18 Nov. 2016.

Article Summary:
Julia Belluz explains in this Vox article that four cities in the U.S. recently passed taxes on soda.
Three cities in California, as well as Boulder, Colorado voted on whether to implement this tax,
and all four overwhelmingly voted yes. In Boulder it passed with 55 percent, in San Francisco
and Oakland the measures passed with 62 percent, and in Albany it passed with 71 percent. The
measures for each of the California cities place a one-cent-per-ounce tax on soda, while the
measure in Colorado implements a two-cent-per-once tax. The first soda tax was passed in 2014
in Berkeley, California, and prior to that there were 40 failed attempts to get these taxes in place.
The support for sugar taxes is based in health reasons. With these taxes it is expected that less
people with drink soda, reducing health concerns like obesity. In addition, the tax revenue can be
used to fight obesity in other ways, such as funding sports programs as is done in Britain or to
give money to communities in need. Soda is being compared to tobacco, as it is following a
similar path to how tobacco consumption has declined.

Economic Analysis:
The soda taxes being implemented are examples of Pigovian taxes. These are taxes that aim to
make up for negative externalities. An externality is a cost or benefit that is not directly
accounted for in a transaction. In this case it is an extra cost, as it is a negative externality. Soda
firms set prices according to the cost to make the drink, its private cost, but the price does not
account for all of the social cost. In other words, the sugary beverages create health problems,
which were not included in the exchange of money at the checkout counter. The taxes on soda
aim to lower demand, which, as stated by the law of demand, would happen because the price is
rising. With the firms having to pay a tax, the supply curve would shift upward, reaching the
social cost (granted the tax is the correct amount to account for the externality). This would set
the market at the efficient equilibrium and eliminate the deadweight loss caused by the
externality.

November 18, 2016