Predicting the Effects of Sugar-Sweetened Beverage Taxes on Food and Beverage Demand in a Large Demand System

A censored Exact Affine Stone Index incomplete demand system is estimated for 23 packaged foods and beverages and a numeraire good. Instrumental variables are used to control for endogenous prices. A half-cent per ounce increase in sugar-sweetened beverage prices is predicted to reduce total calories from the 23 foods and beverages but increase sodium and fat intakes as a result of product substitution. The predicted decline in calories is larger for low-income households than for high-income households, although welfare loss is also higher for low-income households. Neglecting price endogeneity or estimating a conditional demand model significantly overestimates the calorie reduction.