After it was mentioned in one of my classes, I started wondering… what exactly happened to the much-heralded tax on goods high in saturated fats that Denmark installed at the beginning of 2012?
This law was the first time that this relatively drastic step to curb obesity and try to steer healthier eating habits was implemented in practice. Public health scientists had long lamented that unhealthy food is too cheap compared to more healthful alternatives, especially considering the ‘external costs’ of increased health care costs that rising obesity rates would eventually lead to. The theoretical solution: if you make unhealthy goods more expensive, people will buy less and make different choices now that relative price is not pushing them in the wrong direction. In economics, this could be considered the ‘nudge’ theory – in the face of so-called ‘market failures’ (when the private market doesn’t accurately reflect social costs of certain behavior), so the theory goes, politicians can intervene and add some nudging of their own to bring consumers to more socially desirable behavior. The lesson that Denmark taught the rest of the world, though? Consumers don’t really appreciate being nudged.
After several months of public health excitement (“finally somebody is implementing what we have been calling for for years!”), talk about the fat tax died down until the topic was in the headlines again in November; however, this time it was to announce that after a sole year, Danish lawmakers decided to abolish the tax again. The measure had been peppered with complaints, making it “one of the most criticized we had in a long time” according to Mette Gjerskov, the minister of food, agriculture and fisheries. According to news articles published at the time, the law had suffered from several seemingly irreversible flaws:
- It failed to target what it set out to do. While it was supposed to make cheap unhealthy food such as hamburgers, chips and other fast food more expensive, the blanket implementation (an across-the-board tax on all food products containing more than 2.3 percent of saturated fat content) meant that specialty cheeses, bakery goods, or lean sirloin steaks (because the fat content was measured per carcass of meat, not per cut) were hit equally as hard.
- This also meant that a lot of especially smaller producers and retailers were losing out. Either people just bought low-cost (and probably lower-quality) alternatives, or they went to big supermarkets that could spread the tax across a variety of products instead of being limited to just a few products like the butcher around the corner.
- In addition, lawmakers didn’t factor in the proximity to other shopping opportunities – many consumers just crossed the border into Sweden or Germany to get their cheeses and ice cream there. According to one analysis, 48% of Danish went cross-border shopping, and the total value of such purchases increased in 2012 by 10% to $1.8 billion.
- Finally, the purpose and end goal of the tax seems to have been very poorly communicated, or else the general public just doesn’t see the trade-off between long-term and short-term costs the same way policy-makers did. What we do know is that this attempt to influence consumption behavior was deeply unpopular and seen as an intrusion of a ‘nanny state’ in the personal freedom of choice. Conversely, the tax did raise $216 million in new revenues that had to be replaced after its abolition – the NYTimes reported this would be done through “a small increase in income taxes and the elimination of some deductions“. Thus, most consumers probably didn’t save any money overall anyhow, even if they didn’t see it on their grocery bills anymore.
Did it have any effects? As most scientists pointed out, a year is too short really to do some serious impact analysis; yet, a preliminary study by Copenhagen University found that “sales of margarine, butter and cooking oil had fallen by 10-20% over the previous year. But these data, said sceptics said, were skewed by hoarding in the run-up to the legislation as well as by cross-border shopping in its wake.“
So what lessons can be drawn?
Economists often love the idea of imposing taxes and giving subsidies to “correct market failures”, as they say. And in theory, changing the incentive structure of certain behavior definitely sounds appealing – I was just myself discussing the need for taxes on resource use and carbon emissions, subsidies on sustainable behavior such as organic food production, energy-neutral housing etc. with my friends. I guess what we have to remember is that we are dealing with humans, not rational homo oeconomicus creatures we can try to steer at will. Treating people with respect – for their choices, their opinions, and their input – and trying to change with them, instead of trying to change them, might be the only way to arrive at real societal transformation towards a healthy, sustainable future.
What is your opinion on policy involvement to further societal aims – be it public health or sustainable development?