Fast Food is an Inferior Good - 0 views

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  #1 Pete Britt on 18 Mar 12

   

  While it is easy to believe that fast food is an inferior good, and the effectiveness of a fast food tax would be reduced by the income effect affecting the affordability of fast food, a more recent, and controversial, argument takes this goes much further with a claim that fast food is a Giffen good, so that a tax increase would actually spur greater consumption.
  
  While this is hard to believe, and those claiming this seem to be somewhat confused about the difference between ordinary inferior goods and the extreme and unusual case of Giffen goods. Nonetheless, the underlying point that governments are more interested in an excuse to raise tax, rather than evaluating the effectiveness of the tax in improving diet is well made, as a justified fear of the effects of widespread unhealthy eating is exploited to justify a particular policy without proper evaluation of all its effects.
  
  While it is undoubtedly desirable to reduce the consumption of fast food, whether education, taxation, or other measures are the best way to do this remains highly contentious even as European governments introduce such taxes, as well as restrictions on advertising. It is also easy to imagine a great deal of unforeseen adverse consequences of such policies, as people switch to possibly even worse alternatives, or as healthy high-fat foods (such as yoghurt) get caught in the fast food net.
  
  It is hard to imagine that there is no better approach than to tax an acknowledged inferior good.
  
  Will a Junk Food Tax Work

   

  <div class="cArrow"> </div><div class="cContentInner">While it is easy to believe that fast food is an inferior good, and the effectiveness of a fast food tax would be reduced by the income effect affecting the affordability of fast food, a more recent, and controversial, argument takes this goes much further with a claim that fast food is a Giffen good, so that a tax increase would actually spur greater consumption.<br /><br />While this is hard to believe, and those claiming this seem to be somewhat confused about the difference between ordinary inferior goods and the extreme and unusual case of Giffen goods. Nonetheless, the underlying point that governments are more interested in an excuse to raise tax, rather than evaluating the effectiveness of the tax in improving diet is well made, as a justified fear of the effects of widespread unhealthy eating is exploited to justify a particular policy without proper evaluation of all its effects.<br /><br />While it is undoubtedly desirable to reduce the consumption of fast food, whether education, taxation, or other measures are the best way to do this remains highly contentious even as European governments introduce such taxes, as well as restrictions on advertising. It is also easy to imagine a great deal of unforeseen adverse consequences of such policies, as people switch to possibly even worse alternatives, or as healthy high-fat foods (such as yoghurt) get caught in the fast food net.<br /><br />It is hard to imagine that there is no better approach than to tax an acknowledged inferior good.<br /><br /><a rel="nofollow" href="http://www.adamsmith.org/blog/tax-and-economy/a-fast-food-tax-not-so-fast">Will a Junk Food Tax Work</a></div>

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