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Economic

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Economic

Research

Report

Number 100

July 2010 Travis A. Smith, Biing-Hwan Lin, and Jonq-Ying Lee

Taxing Caloric 

Sweetened Beverages

Potential Effects on Beverage 

Consumption, Calorie Intake, and Obesity
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Smith, Travis A., Biing-Hwan Lin, and Jonq-Ying Lee. Taxing Caloric 

Sweetened Beverages: Potential Effects on Beverage Consumption, Calorie 

Intake, and Obesity, ERR-100, U.S. Department of Agriculture, Economic 

Research Service, July 2010.
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Economic Research Service/USDA

United States

Department

of Agriculture

www.ers.usda.gov

A Report from the Economic Research Service

Travis A. Smith, tsmith@ers.usda.gov

Biing-Hwan Lin, blin@ers.usda.gov

Jonq-Ying Lee, jonqying@ufl .edu

Taxing Caloric Sweetened Beverages:

Potential Effects on Beverage Consumption, 

Calorie Intake, and Obesity

Economic

Research

Report

Number 100

July 2010

Abstract

The link between high U.S. obesity rates and the overconsumption of added sugars, 

largely from sodas and fruit drinks, has prompted public calls for a tax on caloric sweetened beverages. Faced with such a tax, consumers may reduce consumption of these 

sweetened beverages and substitute nontaxed beverages, such as bottled water, juice, and 

milk. This study estimated that a tax-induced 20-percent price increase on caloric sweetened beverages could cause an average reduction of 37 calories per day, or 3.8 pounds of 

body weight over a year, for adults and an average of 43 calories per day, or 4.5 pounds 

over a year, for children. Given these reductions in calorie consumption, results show an 

estimated decline in adult overweight prevalence (66.9 to 62.4 percent) and obesity prevalence (33.4 to 30.4 percent), as well as the child at-risk-for-overweight prevalence (32.3 

to 27.0 percent) and the overweight prevalence (16.6 to 13.7 percent). Actual impacts 

would depend on many factors, including how the tax is refl ected in consumer prices and 

the competitive strategies of beverage manufacturers and food retailers.

Keywords

Sugar-sweetened beverages (SSB), soft drinks, soda tax, added sugars, obesity, and 

beverage demand 

Acknowledgments

The authors would like to thank Rosanna Mentzer Morrison of USDA’s Economic 

Research Service (ERS) for her role in the completion of this project. We would also 

like to thank ERS colleagues Lisa Mancino, Jessica Todd, Margaret Andrews, and Fred 

Kuchler of ERS for their contributions and Angela Anderson for editorial assistance and 

design. The authors found comments and suggestions from three peer reviewers—Oral 

Capps (Texas A&M University), Harry M. Kaiser (Cornell University), and Jamie F. 

Chriqui (University of Illinois at Chicago)—to be most helpful. 
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Contents

Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Trends in U.S. Beverage Consumption, 1977-2006. . . . . . . . . . . . . . . . . . 4

Consumption of Added Sugars by the American Population . . . . . . . . . 6

Potential Tax-Induced Changes in Calorie Intake From Beverages. . . . 8

What Happens to Overweight and Obesity Prevalence? . . . . . . . . . . . . 12

Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Appendix 1: State Beverage Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Appendix 2: Beverage Demand Model . . . . . . . . . . . . . . . . . . . . . . . . . . 23
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Summary

The prevalence of obesity among the U.S. population has increased markedly 

over the past three decades. Latest fi gures indicate that two-thirds of adults 

are either overweight or obese, and growing numbers of children are overweight as well. Associations between obesity and certain dietary trends, such 

as eating away from home and drinking beverages sweetened with sugar and/

or high-fructose and other corn syrups (e.g., sodas, fruit drinks, sports and 

energy drinks, and powdered mixes) have received increasing attention. 

What Is the Issue?

According to 1999-2004 National Health and Nutrition Examination Survey 

(NHANES) data on food intake, the average American consumed 22.5 

teaspoons of added sugar per day, with almost half attributed to sodas and 

fruit drinks. Under a 2,400-calorie diet conforming to the 2005 Dietary 

Guidelines for Americans, 22.5 teaspoons of added sugars nearly exhausts 

the discretionary calorie allowance. High U.S. obesity rates have prompted 

the Institute of Medicine of the National Academies of Sciences and some 

State and local government offi cials to suggest a tax on caloric sweetened 

beverages. This study examines the potential effects of such a tax on total 

beverage consumption, calorie intake, and the prevalence of overweight and 

obesity among Americans.

What Did the Study Find?

This study analyzed the effects of a hypothetical tax on caloric sweetened 

sodas, fruit drinks, sports and energy drinks, and powdered mixes. The study 

found that consumers facing a higher price induced by a tax would react 

by adjusting their choices among alternative beverages, such as diet drinks, 

bottled water, juice, coffee/tea, or milk. Results suggest that:

• A tax-induced 20-percent 

increase in the price of caloric 

sweetened beverages could 

reduce net calorie intake from all 

beverages by 37 calories per day 

for the average adult. The effects 

for children were estimated to be 

larger—an average reduction of 

43 calories per day. 

• By assuming that 1 pound of 

body fat has about 3,500 calories, 

and assuming all else remains 

equal, the daily calorie reductions 

would translate into an average 

reduction of 3.8 pounds over a 

year for adults and 4.5 pounds 

over a year for children.

• The weight loss induced by the 

tax could reduce the overweight 

A 20-percent price increase from a tax on caloric sweetened

beverages is estimated to reduce total calorie intake from beverages

by 13 percent for adults and by 11 percent for children

Calories per day

Source: Economic Research Service calculations based on the National Health and 

Examination Survey data, 2003-06.

0

100

200

300

400

500

Average 

2003-06 intake

Estimated 

after-tax intake

Average 

2003-06 intake

Estimated 

after-tax intake

Adults Children

From caloric sweetened beverages From all other beverages

287

250

403

360

153 114

193

144

134 136

210 216
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prevalence among adults from 66.9 to 62.4 percent and the prevalence of 

obesity from 33.4 to 30.4 percent. For children, the at-risk-of-overweight 

prevalence would decline from 32.3 to 27.0 percent and the overweight 

prevalence would decline from 16.6 to 13.7 percent. 

These reductions in the proportion of overweight and obese Americans are 

the result of two factors: 

 1. A large group of individuals are overweight or obese by only a few 

pounds, and a small reduction in calorie intake could change their 

weight classifi cation; and 

 2. Many overweight and obese Americans consume large amounts of 

caloric sweetened beverages. For example, 10.6 percent of overweight adults consumed more than 450 calories per day from caloric 

sweetened beverages—nearly three times the average amount of 152 

calories consumed by adults.

A tax on caloric sweetened beverages would affect all those who consume 

them—overweight, obese, and healthy weight individuals. Our estimates of 

changes in overweight and obesity rates do not capture potential improvements in weight status among those with healthier weights. There are many 

individuals, however, who are a few pounds shy of the Body Mass Index 

(BMI) cutoffs for overweight and obese. The tax-induced reduction in calorie 

intake could not only reduce obesity rates but also help keep certain borderline individuals from joining the ranks of the obese or overweight.

The estimated impact of these measures would depend on, among other 

factors, the size and type of tax and how the tax is refl ected in the prices 

consumers pay. Manufacturers’ and retailers’ responses to the tax would 

affect how much of the tax is passed on to consumers. Differences in the 

at-home and away-from-home food markets are also likely to infl uence 

how a tax would affect prices consumers pay (e.g., bottled and canned soda 

purchases in grocery stores versus free beverage refi lls from soda fountains 

in fast food restaurants).

How Was the Study Conducted?

Two national datasets were used in this analysis: (1) actual consumer grocery 

purchases of beverages from 1998-2007 Nielsen Homescan panels, and (2) 

individual daily beverage intake data with corresponding measured height 

and weight from the 2003-06 National Health and Nutrition Examination 

Survey (NHANES). Beverages in each dataset were grouped into eight 

categories based on calorie content (caloric sweetened beverages, diet drinks, 

skim milk, low-fat milk, whole milk, 100 percent fruit and vegetable juice, 

coffee/tea, and bottled water). Using the purchase data, a demand system was 

specifi ed to estimate how beverage-purchasing decisions would change as 

a result of a price increase for caloric sweetened beverages. Price elasticity 

estimates were then applied to individual beverage intake data reported in 

NHANES to estimate changes in caloric intake for each beverage category in 

response to a tax-induced 20-percent increase in the price of caloric sweetened beverages. By calculating changes in calorie consumption among all 
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beverages and assuming that 1 pound of body fat has about 3,500 calories, 

we estimated the change in each NHANES respondent’s body weight to 

calculate after-tax overweight and obesity prevalence in the U.S. population. 

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Background

Obesity prevalence among the U.S. population has increased markedly over 

the past three decades, with the latest fi gures indicating that two-thirds of 

U.S. adults are either overweight or obese, and growing numbers of children are either overweight or at risk for overweight (fi g. 1). Some research 

suggests that if current obesity rates persist, 86 percent of American adults 

will be either overweight or obese by 2030 (Wang et al., 2008). According 

to a quantitative review of the literature, Tsai et al. (2010) concluded that 

the U.S. national aggregate medical costs (in 2008 dollars) of overweight 

was $15.8 billion and obesity was $98.1 billion, totaling $113.9 billion. As 

researchers evaluate American weight gain and intervention strategies to 

tackle this health problem, associations between obesity and certain dietary 

trends, such as eating out and drinking caloric sweetened beverages, have 

received greater attention. 

According to two systematic reviews of the literature, consumption of beverages sweetened with sugar and/or high-fructose and other corn syrups is 

linked to risks for obesity and type 2 diabetes (Malik et al., 2006; Vartanian 

et al., 2007). Positive associations between weight gain and caloric sweetened beverage consumption, however, do not necessarily imply causality 

(Dietz, 2006). Nevertheless, caloric sweetened beverages have been targeted 

as part of a tax policy to reduce calorie intake, improve diet and health, and 

generate revenue that governments can use to address obesity-related health 

and economic burdens (Brownell and Frieden, 2009; Jacobson and Brownell, 

2000; Powell and Chaloupka, 2009; Institute of Medicine, 2009). 

Figure 1

Overweight and obesity rates, 1976-2006

The number of overweight children and obese adults has more than doubled 

over the past thirty years

Percent overweight or obese

Notes: Overweight children (ages 2-19) are defined by sex- and age-specific BMI ≥ 95th percentile 

based on Centers for Disease Control and Prevention growth charts (CDC, 2009b); obese adults 

(ages 20-74) are defined by a BMI of ≥ 30. 

Source: Centers for Disease Control and Prevention (CDC), National Health and Nutrition 

Examination Surveys (NHANES).

Ages 2-5

Ages 6-11

Ages 12-19

Ages 20-74

0

5

15

25

35

 1976-80 1988-94 1999-2002 2003-06

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X
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In 2009, 33 States levied sales taxes on sodas, both nondiet and diet, at an 

average rate of 5.2 percent (Bridging the Gap, 2010). Missouri, Virginia, 

and Utah had the lowest soda sales tax rates at less than 2 percent, while 

the highest rates (7 percent) were assessed in Indiana, Mississippi, New 

Jersey, and Rhode Island. Thirteen other States had tax rates of at least 6 

percent. Many States also implemented similar taxes on vending machine 

sales, or levied additional taxes on manufacturers, distributors, wholesalers, 

or retailers of sodas (see Appendix Tables 1 and 2 for more information). 

Recent studies investigating links between State-level soda taxes and Body 

Mass Index (BMI)1 among children and adolescents (Powell et al., 2009; 

Sturm et al., 2010; Fletcher et al., 2010), as well as adults (Fletcher et al., 

2008), have shown little-to-no association. 

These fi ndings of minimal effects of State-level soda sales taxes on weight 

outcomes are not surprising. Soda sales taxes are generally small and 

infrequently changed, whereas BMI has been growing until recent years. 

Moreover, a sales tax is not refl ected in the shelf price; it is rung up at the 

checkout counter with other food purchases. As a result, consumers may be 

unaware of the tax and unresponsive to a sales tax increase when making 

retail purchases (McLaughlin, 2009). 

Proponents of taxing caloric sweetened beverages suggest that relatively 

higher tax rates are necessary to have measurable effects, as in the case 

of tobacco taxation (Engelhard et al, 2009). For example, Brownell and 

colleagues (2009) propose “an excise tax of 1 cent per ounce for beverages that have any added caloric sweetener.” Assuming the tax would be 

wholly passed on to the consumer, their proposed tax rate could range widely 

depending on brand, container size, and sale price. For example, a 12-pack 

of 12-ounce cans of branded soda priced at $6 would carry a tax of $1.44 (24 

percent), while a discounted 2-liter container of soda priced at $1 would carry 

a tax of $0.68 (68 percent). 

Taxing food to reduce consumption hinges on the fundamental economic 

principle that consumers respond to a higher price by purchasing less. 

Therefore, the success of a beverage tax partly depends on how much 

consumers curtail their consumption in response to the higher beverage price 

(own-price elasticity). A recent review of food demand research revealed an 

own-price elasticity for sodas and other beverages of -0.8 to -1.0, depending 

on category defi nitions (Andreyeva et al., 2009).2 This elasticity range has 

been used to predict consumers’ responses to taxing sodas in recent studies 

(Brownell et al., 2009; Chaloupka et al., 2009). Yale University’s Rudd 

Center for Food Policy and Obesity uses an own-price elasticity of -1.2 to 

calculate the revenues generated by a tax on caloric sweetened beverages 

(Rudd Center, 2010).

For our evaluation, defi ciencies in these reported elasticities exist. First, 

consumers will respond to a particular beverage tax by adjusting their 

purchases of alternative beverages (cross-price elasticity). Without estimates 

of cross-price elasticities, researchers have relied solely on the own-price 

elasticity and assumed away cross-price effects (Brownell et al., 2009; 

Chaloupka et al., 2009). Secondly, many studies have included sodas and/

or fruit drinks in their analysis, but have not differentiated between nondiet 

and diet (e.g., Kinnucan et al., 2001; Yen et al., 2004; Zheng and Kaiser, 

1 Body Mass Index (BMI) is a measure 

of weight adjusted for height calculated 

as an individual’s weight in kilograms 

divided by the square of his or her height 

in meters. 

2 The -0.8 estimate is based on 14 

studies with categories that included soft 

drinks, carbonated soft drinks, juice and 

soft drinks, soda, soda and fruit ades, 

nonalcoholic beverages, other beverages, 

or simply beverages. The -1.0 estimate 

is based on seven studies with categories 

that included soft drinks, carbonated soft 

drinks, soda or fruit ades, or soda. The 

range for all 14 studies was 0.13-3.18.
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2008). To estimate reductions in energy intake and obesity, a distinction 

must be made between caloric sweetened beverages and their low-calorie 

counterparts. Few demand studies to date have separated regular soft drinks 

from their low-calorie counterparts—one did not include cross-price effects 

of alternative beverages (Bergtold et al., 2004), while another examined only 

soft drinks (Dhar et al., 2003) and excluded sweetened sports, energy, and 

fruit drinks. As a result, the literature lacks the demand elasticity estimates 

needed to fully examine the effect of taxing caloric sweetened beverages. 

In this study, the previous limitations are addressed by analyzing grocery 

purchases from a panel of American households over a 10-year period 

(1998-2007). Specifi cally, we estimate a beverage demand system in which 

all beverage purchases are categorized by calorie content. The estimated 

demand elasticities are then applied to individuals’ beverage intake data from 

a nationally representative survey, which enables us to estimate changes in 

calorie consumption due to changes in purchasing decisions when the price 

of caloric sweetened beverages increases as a result of a tax. The national 

intake survey data are ideal for this study because, in addition to intake 

data, they have a nutrient database for all beverages consumed, as well as 

measured height and weight for each respondent. By calculating the net 

change in calorie consumption after consumers adjust their after-tax beverage 

purchases, we can estimate the reduction in body weight, and thus, overweight and obesity prevalence in the U.S. population.
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Trends in U.S. Beverage Consumption, 

1977–2006

Total calorie intake among the U.S. population has increased over the past 30 

years (USDA/ERS-Nutrient Availability, 2010). The majority of the increase 

comes from snacking on both food and beverages (Piernas and Popkin, 2009). 

A previous study found that the percentage of total calorie intake from beverages increased from 14.2 to 21.0 percent over 1997-2002, largely from caloric 

sweetened beverages (Duffey and Popkin, 2007). Because caloric intake from 

beverages is less satiating compared with solid foods (DiMeglio and Mattes, 

2000; Mattes, 1996, 2006; Stull et al., 2008) and many caloric sweetened 

beverages lack suffi cient nutrient content, the link between sweetened beverage 

consumption and weight gain has attracted attention (Dennis et al., 2009).

Trends in American beverage consumption have changed dramatically over 

the past three decades (fi g. 2). The popularity of caloric sweetened sodas and 

fruit drinks in American diets has increased at the expense of milk, especially 

since the late 1980s. Today, adults consume nearly twice as many ounces of 

caloric sweetened sodas as milk. Children’s milk consumption was over three 

times that of their soda consumption in the late 1970s, but children consumed 

roughly equal amounts of each beverage by 2003-06. Further, the consumption of fruit drinks has been on the rise for both adults and children. These 

consumption trends correlate with the prevalence of overweight children and 

obese adults in the United States and have prompted a call for caloric sweetened beverages to be consumed more judiciously in lieu of more nutritious 

beverages (e.g., milk and juices) or low-calorie beverages (e.g., water and 

diet drinks).
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Figure 2

Beverage consumption, 1977-2006

Daily milk consumption among children has declined to similar consumption levels 

as nondiet sodas, while nondiet soda consumption among adults surpasses milk

Ounces per day

Source: ERS calculations based on USDA’s 1977-78 Nationwide Food Consumption Survey (NFCS) 

data, 1989-91 and 1994-98 Continuing Survey of Food Intakes by Individuals (CSFII), and the 

Centers for Disease Control and Prevention’s (CDC) National Center for Health Statistics 

1999-2006 National Health and Nutrition Examination Survey (NHANES). 

Milk 

Ounces per day

Children (ages 2-19)

Adults (ages 20 and older)

 1977-78 1989-91 1994-98 1999- 2003-06

 2002

15

10

5

0

 1977-78 1989-91 1994-98 1999- 2003-06

 2002

15

10

5

0

X

Nondiet soda

Fruit drinks

X

X

X X

X

X X X X

X X

X X X

Milk 

Nondiet soda

Fruit drinks

X X X

X X X

X

X

X X

X X X

X X
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Consumption of Added Sugars 

by the American Population 

Every 5 years, the U.S. Government updates the Dietary Guidelines for 

Americans to help consumers choose diets that meet their nutritional needs. 

The Guidelines set recommended consumption amounts for the major food 

groups. The Guidelines do not include recommendations for added sugars, 

but instead include a “discretionary calorie allowance” for diets that include 

and do not exceed the recommended amounts of each food group in the 

Guidelines (Dietary Guidelines for Americans, Appendix A-3, 2005). Added 

sugars include cane and beet sugars, honey, molasses, and corn and other 

syrups used for home baking and sweetening, as well as sugars commonly 

added to processed foods and beverages, but not the naturally occurring 

sugars in fruit or milk.

For diets following the Guidelines, the discretionary calorie allowance may 

be used to increase the amount of food selected from each food group; to 

consume foods that are not in the lowest fat form (such as 2 percent milk or 

medium-fat meat); to add oil, fat, or sugars to foods; to consume alcohol; 

or to consume foods that contain added sugars (Dietary Guidelines for 

Americans, 2005). Like the recommendations for major food groups, the 

allowance is based on an individual’s energy (calorie) requirement which, 

in turn, is determined by age, gender, body weight and height, physical 

activity level, and pregnancy/lactation status. For example, a 2,400-calorie 

diet conforming to the Guidelines, which may be appropriate for a moderately active adult male with a median height and weight for that height 

(BMI=22.5), includes a discretionary allowance of 362 calories, which is 

equivalent to roughly 23 teaspoons (tsp) of added sugars. Likewise, a moderately active 4 to 8 year old child on a 1,400-calorie diet conforming to the 

Guidelines would have 171 discretionary calories, equal to about 11 tsp of 

added sugars. The Guidelines leave it to the individual to decide how to 

consume these calories, including whether to allocate them to the consumption of food and beverages with added sugars. 

Using data from 1999-2004 NHANES, we found that the average American 

consumed 22.5 tsp of added sugars per day (table 1)–essentially exhausting 

the 362 discretionary calorie allowance for a 2,400-calorie diet following the 

Guidelines, leaving no allowance for other foods. American adults consumed 

21.6 tsp of added sugars per day and children (ages 2–19) consumed 24.9 

tsp. Caloric sweetened sodas and fruit drinks (containing less than 100 

percent juice by volume) are major sources of added sugars in American 

diets, contributing an average of 10.58 tsp of added sugars each day. Children 

consumed 11.96 tsp of added sugars from sodas and fruit drinks per day (47 

percent of their total intake of added sugars). 

The excessive intake of added sugars from sodas and fruit drinks, and its 

correlation with weight gain, has been receiving attention in the fi ght against 

obesity. Recognizing the role of caloric sweetened beverages in American 

children’s diets, the Institute of Medicine (2009) recommended that local 
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governments implement a tax strategy for calorie-dense, nutrient-poor foods 

and beverages to discourage consumption. Earlier this year, the White House 

Task Force on Childhood Obesity recommended that Federal and State/local 

governments analyze the effects of taxes on less healthy, energy-dense foods, 

such as caloric sweetened beverages (White House Task Force on Childhood 

Obesity, 2010). The Institute of Medicine and other beverage tax advocates 

(IOM, 2009; Brownell et al., 2009; Brownell and Frieden, 2009) suggest that 

the generated tax revenues could be used to promote healthier eating and 

reduce or prevent obesity.

Table 1

Added sugar consumption, 1999-2004

Caloric sweetened soft drinks and fruit drinks account for almost half of added sugars in the American diet

 Average consumption

Sodas Fruit Other Desserts Ready- Sweets Other Total added

 drinks drinks to-eat foods sugars

Population cereals

 ——————————————————— Teaspoons per day ———————————————————

United States

 (age 2 and older) 8.2 2.4 0.8 3.7 0.8 3.3 3.2 22.5

Children

 (ages 2-19) 8.4 3.6 0.6 3.6 1.5 3.9 3.4 24.9

Adults

 (age 20 and older) 8.1 2.0 0.9 3.7 0.6 3.1 3.1 21.6

Notes: Desserts include dairy foods (e.g., ice cream, custards, and puddings) and sweetened grains (e.g., cakes, cookies, pies, and pastries). 

Sweets include candies, jams, jellies, sugar, honey, and other sweeteners. Totals may not sum due to rounding.

Source: ERS calculations based on National Health and Nutrition Examination Survey (NHANES) 1999-2004 data.
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Table 2

Beverage categories and daily calorie consumption, 2003-06

Beverage category Types of beverages included Calories per day

 Adults Children

Caloric sweetened beverages Sodas, fruit drinks, sports and energy drinks, and 153 193

 powdered mixes with added sugars

Diet (low-calorie) beverages Low- or no-calorie versions of sodas, fruit drinks, 3 1

 sport and energy drinks, and powdered mixes

Skim milk Milk labeled as skim or nonfat 11 11

Low-fat milk Milk labeled as low-fat or reduced fat 37 76

Whole milk Milk labeled as whole 22 57

Juices All fruit and vegetable juices containing 36 55

 100 percent juice

Coffee/tea* Liquid coffee and teas, excludes dry beans and leaves 25 10

Bottled water Bottled water, excludes tap water 0 0

* Nielsen does not provide information to distinguish caloric and noncaloric coffees/teas.

Source: Beverage categories based on authors’ defi nitions. Daily calorie consumption based on 2003-06 National Health and Nutrition 

Examination Survey (NHANES).

Potential Tax-Induced Changes 

in Calorie Intake From Beverages

Using grocery purchase data reported by Nielsen Homescan panelists between 

1998 and 2007 (Nielsen, 2007), we estimated a beverage demand system. 

Household grocery purchases were aggregated into 120 national monthly observations. Beverage purchases were grouped into eight categories using product 

descriptions provided by Nielsen as shown in table 2. We also present the 

average daily calorie intake for adults and children in each beverage category. 

For caloric sweetened beverages, we found the own-price elasticity of 

demand to be -1.26 (see, “Appendix: Beverage Demand Model” for full 

econometric details and demand elasticity estimates). Thus, a 10-percent 

increase in price is predicted to reduce grocery store purchases of caloric 

sweetened beverages by 12.6 percent (see box, “Effect of Beverage Tax 

May Differ in the Away-From-Home Market”). Faced with a higher price 

for caloric sweetened beverages, consumers would purchase more bottled 

water, juice, and milk. Bottled water was found to be the strongest substitute 

for caloric sweetened beverages (cross-price elasticity of 0.75), while skim 

and whole milk were the weakest substitutes (cross-price elasticity of 0.2). 

Fruit and vegetable juices containing 100 percent juice were also found to 

be substitutes for caloric sweetened beverages with a cross-price elasticity 

of 0.56, falling between that of water and milk. A complementary effect for 

diet beverages was found (cross-price elasticity of -0.46), suggesting a higher 

price for caloric sweetened beverages would decrease grocery purchases of 

diet drinks. Given that our estimates are based on household-level grocery 

purchases, the complimentary effect is possibly the result of a diverse set of 

preferences within a household for diet and nondiet sweetened beverages.

We use the demand elasticities to estimate changes in individuals’ daily 

beverage consumption reported in 2003-06 NHANES in response to a taxinduced price increase of caloric sweetened beverages. Individual daily 

beverage consumption and the corresponding caloric contents are aggregated 

into eight categories, as specifi ed in table 2, using USDA’s nutrient database 
9

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Effect of Beverage Tax May Differ 

 in the Away-From-Home Market

Our results are based on a few assumptions typically found in demand studies. 

Like many other beverage demand studies, we used data from household 

purchases at grocery stores and did not include beverage purchases from 

other commercial outlets, such as restaurants and vending machines. One 

cannot ignore, however, the large amount of beverages purchased in eating 

establishments, such as fast food and full-service restaurants, ball games, 

movie theaters, and other away-from-home eating occasions. According to 

2003-06 NHANES, about 50 percent of caloric sweetened beverages were 

consumed away from home.

In fast food and full-service restaurants, consumers often pay for a meal 

combo that includes beverages. Likewise, some restaurants offer free refills, 

creating a disconnect between quantity purchased and price. Because of 

these marketing conditions, consumers are likely to react differently to 

a price increase at home than away from home. While we acknowledge 

this potential problem, we note the difficulty in estimating the away-fromhome demand for beverages due to data deficiencies. In this study, at-home 

elasticities are applied to total at-home and away-from-home consumption. 

This assumption has been made, but not pointed out, in past studies that 

estimate the impact of a tax on beverage consumption.

Figure 3

Calorie content varies widely across beverages

Source: USDA, Agricultural Research Service’s Nutrient Data Laboratory.

Calories per 8 ounces

0 30 60 90 120 150

Whole milk

2-percent milk

Apple juice

Orange juice

Nondiet cola

Skim milk

Ginger ale

Sports drink (Gatorade)

Diet cola 

with aspartame

Unsweetened, 

brewed coffee/tea

Bottled water

149

122

114

112

91

83

83

63

5

2

0

(USDA/ARS, 2010). Certain juices and milk drinks are more energy dense 

than sodas (fig. 3). Because we expect consumers to adjust their consumption of alternative beverages when a tax is levied on caloric sweetened 

beverages (cross-price elasticity), failure to incorporate alternative bever-
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Table 3

Changes in daily beverage consumption

A tax-induced 20-percent increase in the price of caloric sweetened beverages could produce an overall reduction in calorie 

intake from beverages

 Changes in daily consumption

 Adults Children

Beverage categories Ounces Calories Ounces Calories

All beverages -3.63 -36.9 -3.78 -42.7

Caloric sweetened beverages -3.63 -38.8 -4.45 -48.8

Diet beverages -0.11 0.0 -0.05 0.0

Skim milk 0.01 0.1 0.02 0.2

Low-fat milk 0.03 0.4 0.08 1.2

Whole milk 0.03 0.6 0.10 1.7

Juices 0.13 1.7 0.27 3.6

Coffee/tea -0.58 -0.9 -0.13 -0.5

Bottled water 0.48 0.0 0.37 0.0

Source: ERS calculations based on 2003-06 National Health and Nutrition Examination Survey (NHANES) (8,460 adults and 7,365 children).

3Using the own- and cross-price elasticities and corresponding standard errors 

reported in appendix table 4, a 95-percent confi dence interval was constructed: 

Net decline of [28.2 – 45.3] calories/day 

for adults, and [29.8 – 55.3] calories/day 

for children.

ages would bias an assessment of the calorie-reduction effect from a tax. 

Furthermore, not including alternative beverages to estimate a beverage 

demand system would result in model misspecifi cation and bias estimates of 

demand elasticities.

Assuming that a tax raises caloric sweetened beverage prices at retail food 

stores and restaurants by 20 percent for consumers, the average daily calorie 

intake from caloric sweetened beverages is estimated to fall by 38.8 calories 

for adults and by 48.8 calories for children (table 3). To calculate the net 

change in calorie consumption from shifting beverage choices in response 

to a tax, we apply the cross-price effects to individual beverage intake data 

found in NHANES. Led by increased consumption of calorie-containing 

juices and milk after the tax is imposed, average daily calorie intake from 

all beverages other than caloric sweetened beverages increased an estimated 

1.9 calories for adults and 6.1 calories for children. Subtracting these calorie 

increases from the calorie savings from lower consumption of the taxed 

beverages results in a net decline of 36.9 calories per day for adults and 42.7 

calories per day for children3 (see box, “Calculating Changes in Calorie 

Consumption and Weight Status”). 

Our fi ndings are based on a historical snapshot of household beverage 

purchases linked with individual beverage intake surveys. From these 

historical purchase transactions, we have estimated the price elasticity of 

demand—how consumers would react to a price change in caloric sweetened 

beverages. Price elasticities are generally used to simulate the effects of a 

“small” change in price because, like our estimates, they are typically derived 

with data on small price changes observed in retail settings. The 20-percent 

soda tax considered here is large in comparison to typical retail price variation. From appendix table 3, we can see that a 20-percent increase in the 

mean price of caloric sweetened beverages is larger than the observed range 

in our data. 

When price increases or taxes are large, elasticities may underestimate actual 

consumer reactions. This may be particularly true if large taxes are fortifi ed 

by complementary consumer education policies. For example, large State 

and Federal cigarette taxes (on average 85 percent of the average before-tax 
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Calculating Changes in Calorie Consumption and Weight Status

The fi gure below represents a hypothetical individual’s intake and the calculations used to derive changes in calorie 

intake and body weight. This method is carried out for all individuals in 2003-06 NHANES who drank caloricsweetened beverages. Those who did not drink caloric sweetened beverages were unaffected by the tax. 

We need only to consider the elasticities presented in the fi rst column of appendix table 4. These elasticities refl ect 

the percentage change in purchases from each beverage category due to a 1-percent change in the price of caloric 

sweetened beverages (A). Under our scenario, the price of caloric sweetened beverages increases by 20 percent due 

to a tax and must be refl ected in the percentage change in purchases (B). To translate changes in consumption from 

purchase decisions, we must assume a one-to-one translation—the percentage change in purchases is equivalent to 

the percentage change in consumption. Multiplying column B by each individual’s calorie intake from each beverage 

category (C) yields that individual’s change in daily calorie intake (D). Averaging these changes in calorie intake (D) 

over the entire population yields the average change in daily calorie intake found in table 3. Assuming that 1 pound 

of body weight has about 3,500 calories, we calculate each NHANES respondent’s weight reduction over 1 year (E). 

Each individual’s new, hypothetical weight can be used to recalculate overweight and obesity prevalence for the U.S. 

population.

Beverages

Caloric sweetened

Diet 

Skim milk

Low-fat milk

Whole milk

Juices

Coffee/tea

Bottled water

(A)

Elasticity

(B)

Elasticity

multiplied by 

20 percent

(C)

Individual 

daily intake1

(D)

Change in 

individual 

daily intake

(E)

Reduction 

in calories 

and weight

-1.264

-0.457

0.198

0.115

0.222

0.557

-0.383

0.749

 

-25.28

-9.14

3.96

2.30

4.44

11.14

-7.66

14.98

 

216

0

0

122

0

112

2

0

 

-54.6

0

0

2.8

0

12.5

-0.2

0.0

-39.5

calories/day

-4.1

pounds/year

1

Example individual: Adult male, 5 foot 10 inches, weighing 175 pounds would have a BMI of 25.1—overweight. The calorie contents represent the 

following: 12 ounces of cola, 8 ounces of fruit drink, 8 ounces of 2 percent milk, 8 ounces of orange juice, and 8 ounces of unsweetened brewed tea. 

After the tax, assuming elasticities and all else constant, the adult male would lose 4.1 pounds of body weight over 1 year, reducing his BMI to 24.5

—normal weight.

Percent Calories/day Calories/day

price or 46 percent of the average after-tax price (Campaign for Tobacco 

Free Kids, 2010)) combined with government and private tobacco control 

campaigns have been credited with the large reductions in U.S. cigarette 

use (Chaloupka, 2010). Using the National Health Interview Survey, the 

CDC estimates that the share of adults who smoke fell from 42.4 percent to 

20.6 percent between 1965 and 2008—a result that many would not have 

predicted given economists’ shortrun estimates of inelastic cigarette demand 

(average estimate -0.48 (Gallet and List, 2003)). (See Chaloupka 2010; 

Engelhard et al., 2009 for reviews of the tobacco-tax literature.)
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What Happens to Overweight 

and Obesity Prevalence?

NHANES respondents’ body weight and height were measured during the 

survey. The body weight and height data were used to determine an individual’s BMI, which is the basis for classifying weight status. For adults, 

overweight and obesity thresholds are a BMI score of 25 and 30, respectively. 

For children, the Centers for Disease Control and Prevention (CDC) child 

growth charts are used, and the 85th and 95th percentiles are the thresholds 

to classify children (ages 2-19) as at risk for overweight and overweight, 

respectively (Kuczmarski et al., 2002). 

The dynamic relationship between calorie intake and body weight is quite 

complex. Weight loss is the result of an energy imbalance (excessive calorie 

expenditure over intake), and maintaining such an imbalance will lead 

to long-term changes in weight. When an individual loses weight, he/she 

will need fewer calories to maintain the lower body weight—given a fi xed 

reduction in daily energy intake, an individual's weight will decrease but 

then saturate to a new steady state, which can take several years to achieve 

(Chow and Hall, 2008). One frequently used relationship in textbooks (e.g., 

Whitney et al., 2002) and scientifi c articles (e.g., Duffey et al., 2010) is that a 

pound of fat tissue has about 3,500 calories, which we use to predict the taxinduced weight loss and the resulting changes in the overweight and obesity 

prevalence.

Assuming that everything else remains equal (e.g., constant physical activity 

level and no shift to foods other than beverages), a reduction of 3,500 

calories leads to a 1-pound loss in body weight (Whitney et al., 2002). 

Individuals’ body weight reductions can be used to compare the associated 

before- and after-tax prevalence of overweight and obesity in the United 

States. We predict that the overweight prevalence among adults could 

decline from 66.9 to 62.4 percent, and the prevalence of obese adults could 

decline from 33.4 to 30.4 percent. For children, the at-risk-for-overweight 

prevalence could decline from 32.3 to 27.0 percent, and the prevalence of 

overweight children could decline from 16.6 to 13.7 percent. 

These reductions in overweight and obesity prevalence are the result of two 

factors. First, a large group of adults and children are overweight or obese 

by only a few pounds. A small reduction in calorie intake could change the 

weight classifi cation among these individuals. Second, many overweight 

adults and children consume large quantities of caloric sweetened beverages. Under our assumptions, individuals with a higher consumption of 

taxed beverages would be affected more by the tax than those who consume 

less. For example, the overweight adults who would shift to a healthy weight 

after the 20-percent tax consumed 496 calories a day from caloric sweetened 

beverages compared with 100 calories consumed by those who remain overweight under the tax. Obese adults who would become nonobese consumed 

474 calories a day from caloric sweetened beverages compared with 127 

calories consumed by those who remain obese. 
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Percent of adults age 20 and older

Note: Each BMI value is inclusive (e.g., BMI of 25 includes those with a BMI of 25 to 25.9)

Source: ERS calculations based on 2003-06 National Health and Nutrition Examination Survey (NHANES) data.

<16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 >42

Figure 4

Share of adults at each BMI level

Over 14 percent of American adults straddle the overweight threshold

0

2

4

6

8

10

Body Mass Index (BMI)

Overweight threshold (BMI > 25)

Obesity threshold (BMI > 30)

0.4 0.6

1.4

2.5

3.4

5.0

5.6

6.7

7.4 7.1 7.4

6.7

6.2 6.0

4.8 4.9

3.9 3.6

2.7

2.1 2.1

1.5 1.5 1.2 0.9 0.8

3.7

In addition, many individuals are just a few pounds below the BMI cutoffs 

for overweight and obesity (fi g. 4). Reduced consumption of caloric sweetened beverages triggered by the tax could prevent them from joining the 

ranks of the obese or overweight. 
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Discussion

The use of economic incentives or disincentives to encourage healthful food 

choices has received heightened attention among policymakers in an effort 

to improve the American diet. The rich food-demand literature suggests that 

many foods are generally own-price inelastic—that is, the percentage change 

in consumption is smaller than the percentage change in price (Andreyeva 

et al., 2010). Under inelastic demand, price manipulations alone will not 

induce large consumer responses. This fi nding is echoed in analyses examining the effects of taxing salty snacks and fat in dairy products (Kuchler 

et al., 2004; Chouinard et al., 2007), as well as subsidizing fruit, vegetable, 

and dairy consumption (Lin et al., 2010). Our results in the present study 

suggest that the demand for caloric sweetened beverages is own-price elastic, 

suggesting consumers are relatively responsive to price changes—a 10- 

percent price increase is estimated to reduce purchases by 12.6 percent. 

To promote healthier food choices, alternative strategies to taxing caloric 

sweetened beverages exist—subsidizing healthier beverage choices, 

restricting supply of unhealthy beverages, or improving informational 

campaigns. Many of these types of policies have been implemented for children in schools. For example, 31 States had policies limiting access to and/or 

setting nutrition standards for competitive foods in schools in 2009, including 

caloric sweetened beverages (Trust for America’s Health, 2009). Likewise, 

the National School Lunch Program offers subsidized milk and requires milk 

as a menu component. Consequently, school meals are found to be calcium 

rich, compared with meals eaten by children elsewhere (Lin et al., 1999). If 

the objective is to reduce the obesity prevalence, however, it is important to 

note that some juices and reduced-fat milk contain more calories than sodas. 

Children have also responded positively to lowering the price of healthy 

snacks and raising the price of less healthy snacks in school settings (French 

et al., 2001; Jeffrey et al., 1994). The same pricing strategy could be considered to encourage healthier beverage choices at school. It is important to 

point out, however, that results from in-school experiments may not apply 

to retail food markets because children have unique utility functions, partly 

due to their limited resources and the restricted variety of snacks available in 

schools. 

Type of Tax Matters

Economists are often tasked with calculating consumers’ responsiveness to 

price signals. For a consumer to respond to a tax, he or she must be aware of 

the tax-induced price change. In this analysis, we assumed that consumers 

would be cognizant of the 20-percent price increase in caloric sweetened 

beverages as a result of a tax. But would this be true in the marketplace?

A sales tax is applied as items are rung up at checkout and not displayed on 

the grocery store shelf. Consumers are often not aware of the tax burden 

from a particular item or may not consider a sales tax when making food 

purchase choices at grocery stores or restaurants (McLaughlin, 2009), 

possibly explaining previous fi ndings that BMI was not associated with 

State-level taxes (e.g., Fletcher et al., 2009; Powell et al., 2009; Sturm et 
15

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al., 2010; Fletcher et al., 2010). In addition, grocery purchases of beverages 

and other eligible foods within USDA’s Supplemental Nutrition Assistance 

Program (SNAP, formerly known as the Food Stamp Program) are exempt 

from sales taxes (USDA/FNS, 2010). Thus, SNAP recipients would not be 

subject to the higher price in grocery stores that result from a sales tax.

Caloric sweetened beverages could also be taxed through an excise tax on 

drink manufacturers based on the quantity of the beverage produced or on the 

amount of sugar and syrups used in their products. If the tax is then passed 

on to retailers, who, in turn, incorporate it into a higher retail price, the price 

increase is displayed on the supermarket shelf or restaurant menu. An excise 

tax will be more likely to affect food choices, including grocery purchases for 

SNAP benefi t recipients. 

Reactions of Beverage Companies and Retailers 

Affect Impact of Tax

Manufacturers’ and retailers’ responses to taxes—both sales and excise 

taxes—affect the size of the tax-induced price increase paid by consumers. 

If the higher cost from an excise tax is not passed through to the consumer 

or partially absorbed by the manufacturer or retailer, the effect of the tax is 

dampened. For example, manufacturers could fully absorb an excise tax and 

not raise the prices of the taxed beverages, or they could raise prices by less 

than the full tax rate. If only a portion of the excise tax is passed on to the 

consumer, then an excise tax greater than 20 percent would be required to 

cause a 20-percent price increase. Similarly, retailers have freedom to set 

shelf prices; they could adjust prices to compensate for a tax.

The market structure of the beverage industry can also make it diffi cult to 

predict how manufacturers and suppliers of caloric sweetened beverages 

would change their competitive strategies, if at all, in reaction to a tax on 

their products. Beverage manufacturers could spread the cost of the excise 

tax across their products by raising prices of both taxed and nontaxed beverages, creating a situation where the relative price of caloric sweetened 

beverages versus alternative beverages would essentially remain unchanged. 

Under this scenario, consumers would be less likely to choose alternative 

beverages, again, dampening the effect of the tax. For the same reasons, it is 

also diffi cult to predict the infl uence that a tax on caloric sweetened beverages 

would have on the employment and local economy. 

Using taxes or other disincentives to infl uence consumption is a complicated 

undertaking with many unknowns. Modeling consumers’ responsiveness to 

higher prices resulting from a tax on caloric sweetened beverages is just one 

step in predicting the impact of the tax. Responsiveness at the individual or 

household level could vary across other elements, such as personal preference and income level. The ultimate outcome would depend on many factors, 

including the size of the tax, the type of tax, and the competitive strategies of 

beverage manufacturers and food retailers. 
16

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Appendix 1

State Beverage Taxes

Appendix table 1

State-level sales taxes of general food and sodas, effective January 2009

 Food Soda Soda Food Soda Soda

State sales sales vending State sales sales vending

 ---- Tax rate (percent) ---- ---- Tax rate (percent) ----

Alabama 4.0 4.0 4.0 Missouri 1.225 1.225 1.225

Alaska 0.0 0.0 0.0 Montana 0.0 0.0 0.0

Arizona 0.0 0.0 0.0 Nebraska 0.0 0.0 5.5

Arkansas 3.0 3.0 3.0 Nevada 0.0 0.0 0.0

California 0.0 6.25 6.25 New Hampshire 0.0 0.0 0.0

Colorado 0.0 0.0 0.0 New Jersey 0.0 7.0 7.0

Connecticut 0.0 6.0 6.0 New Mexico 0.0 0.0 5.0

Delaware 0.0 0.0 0.0 New York 0.0 4.0 4.0

District of North Carolina 0.0 4.5 4.5

 Columbia 0.0 0.0 5.75 North Dakota 0.0 5.0 5.0

Florida 0.0 6.0 6.0 Ohio 0.0 5.5 5.5

Georgia 0.0 0.0 4.0 Oklahoma 4.5 4.5 4.5

Hawaii* 4.0 4.0 4.0 Oregon 0.0 0.0 0.0

Idaho 6.0 6.0 6.0 Pennsylvania 0.0 6.0 6.0

Illinois 1.0 6.25 6.25 Rhode Island 0.0 7.0 7.0

Indiana 0.0 7.0 7.0 South Carolina 0.0 0.0 6.0

Iowa 0.0 6.0 6.0 South Dakota 4.0 4.0 4.0

Kansas 5.3 5.3 5.3 Tennessee 5.5 5.5 5.5

Kentucky 0.0 6.0 6.0 Texas 0.0 6.25 6.25

Louisiana 0.0 0.0 0.0 Utah 1.75 1.75 1.75

Maine 0.0 5.0 5.0 Vermont 0.0 0.0 0.0

Maryland 0.0 6.0 6.0 Virginia 1.5 1.5 4.0

Massachusetts 0.0 0.0 0.0 Washington 0.0 6.5 6.5

Michigan 0.0 0.0 0.0 West Virginia 3.0 6.0 6.0

Minnesota 0.0 6.5 6.5 Wisconsin 0.0 5.0 5.0

Mississippi 7.0 7.0 8.0 Wyoming 0.0 0.0 4.0

* Hawaii does not levy a specifi c soda sales tax, but rather a general excise tax.

Source: Compiled from Bridging the Gap, 2010.
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Appendix table 2

State-level nonsales taxes placed on sodas, effective January 2009

State Tax

Alabama 1. License tax placed on manufacturers of soda bottles based on bottling machine output—from $40 for machines with 16 bottles per minute of output to 

$500 for 150 bottles or more per minute.

2. Annual license fee placed on retailers ($2.50; waived if retailer also sales 

soda by means of a tap) and wholesalers ($50; waived if wholesaler has a 

bottling license) of soda bottles.

3. Annual license fee place on retailers of soda sold via a dispensing device or 

tap based on number of residents—$10 for less than 5,000; $15 for 5,000 to 

15,000; $20 for 15,000 to 20,000; and $25 for over 25,000—in addition to an 

additional $2.50 annual tax.

Arizona 1. Privilege tax of $0.21 per gallon placed on manufacturers, distributors, 

wholesalers, or retailers of soda bottles; waived for retailers if purchased 

from a licensed manufacturer, distributor, or wholesaler.

2. Privilege tax of $2 per gallon placed on manufacturers, distributors, wholesalers, or retailers of syrup used in sodas; waived for retailers if purchased 

from a licensed manufacturer, distributor, or wholesaler.

3. Privilege tax of $0.21 per gallon of soft drinks made from a powder mix 

according to manufacturer’s directions placed on manufacturers, distributors, wholesalers, or retailers; waived for retailers if mix is purchased from a 

licensed manufacturer, distributor, or wholesaler.

Rhode Island 1. Excise tax of $0.04 per case (24, 12 ounce cans) of sodas placed on manufacturers.

Tennessee 1. Privilege tax of 1.9 percent of gross receipts of sodas placed on manufacturers and retailers.

Virginia 1. Excise tax placed on distributors and wholesalers of sodas varying from $50 

to $33,000 depending on gross receipts

Washington 1. Excise tax of $1 per gallon of syrup placed on wholesalers and retailers of 

soda syrup, unless previously taxed.

West Virginia* 1. Excise tax of $0.01 per half liter of soda placed on manufacturers, distributors, wholesalers, or retailers of soda.

2. Excise tax of $0.80 per gallon of soda syrup place on manufacturers, distributors, wholesalers, or retailers of soda syrup.

3. Excise tax of $0.84 per 4 liters of soda syrup place on manufacturers, distributors, wholesalers, or retailers of soda syrup.

* West Virginia has two provisions for an excise tax on syrups based on a gallon and 4 liters, although they are technically the 

same, because the statutes cannot be reconciled.

Source: Bridging the Gap, 2010.
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Appendix 2

Beverage Demand Model

In this study, we estimated a beverage demand system in which beverage 

categories are distinguished by calorie content. A complete food demand 

system was not estimated, but rather separability between beverages and 

other food items was assumed in food budgeting and a sub-system of the 

eight beverages was estimated (caloric-sweetened beverages, diet drinks, 

skim milk, low-fat milk, whole milk, juice, coffee/tea, and bottled water).

The Almost Ideal Demand System (AIDS, Deaton and Muellbauer, 1980) is 

used for the empirical estimation of a beverage demand system. The AIDS 

can be specifi ed as:

(1) wi

 = αi + ∑i γij lnpj + βi ln(m/P*) + ei i = 1, ... , n, 

where wi

 is the beverage expenditure share for beverage i; pj is the price for 

beverage j; m is the total expenditure for all beverages; αi

 , γij , and βi are the 

parameters to be estimated; and ei

 is the disturbance term. P is a price index 

defi ned by:

(2) lnP = α0 + ∑i αi

 lnpi + 1/2 ∑i∑j γij* lnpi lnpj

and γij = (γij* + γij*)/2. Equation 1 can be considered as the fi rst-order 

approximation to the general unknown relation between wi

 and lnm, and the 

lnp’s. Shift variables, such as the average U.S. monthly temperature and a 

time trend, are incorporated into the AIDS using a specifi cation suggested 

by Alston et al. (2001). According to the Alston et al. specifi cation, these 

demand shifters can be incorporated into equation 1 as

(3) wi

 = αi* + ∑i γij lnpj + βi ln(m/P*) + ei i = 1, ... , n,

where αi

* = αi + φ1i (temperature) + φ2i (time trend); lnP* = α0* + ∑ αi* lnpi

+ 1/2 ∑i

∑j γij* lnpi lnpj; and α0* = α0 + υ1i (temperature) + υ2i (time trend). 

Adding-up conditions are given by:

(4) ∑i αi

 = 1, ∑i βi = 0, ∑i γij = 0, ∑i φ1i = 0, ∑i φ2i = 0

Homogeneity and symmetry conditions require:

(5) ∑j γij = 0 for all i and γij = γji for all i, j (i ≠ j)

The price index P* is scaled to unity at the sample means of prices and 

the constant term in equation 2 and α0 was restricted to be zero (Moschini, 

1998). Conditional expenditure (εi

) and uncompensated price (εij) elasticity 

estimates at sample means can be calculated as:

(6) εi

 = 1 + βi/wi and

(7) εij = (γij - βi (wj

 - βjln (m/P*))/wi – δij

where δij is the Kronnecker delta that is unity if i = j and zero otherwise.
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Variable defi nitions and summary statistics can be found in appendix table 

3. The iterative seemingly-unrelated-regression technique (TSP, version 5.0) 

was used to estimate the model represented by equation 3 with homogeneity and symmetry conditions (equation 5) imposed. As the data add up by 

construction, the error covariance matrix was singular and an arbitrary equation was excluded (the model estimates are invariant to the equation deleted 

as shown by Barten 1969). The parameters of the excluded equation can be 

obtained from the adding-up conditions (equation 4) or by re-estimating the 

model, omitting a different equation.

By estimating the conditional AIDS for beverages shown by equation 3, 

fi rst-order autocorrelation was found to exist, which required estimating an 

additional parameter ρ (Berndt and Savin, 1975). In this model, each equation included only the lagged error for that equation, but to satisfy adding 

up, the seven autocorrelation parameters were constrained to be equal. The 

120-month time-series data were fi tted by the nonlinear AIDS model, and 

demand price elasticities were derived using equations 6 and 7. For brevity, 

the parameter estimates are not reported, and the demand elasticities are 

reported in appendix table 4. The estimated autocorrelation coeffi cient, ρ, 

had a value of 0.71 with a likelihood ratio test statistic of 267.78. 

Appendix table 3

Variable defi nitions and summary statistics, 1998-2007

Variable Defi nition Mean St. Dev. Minimum Maximum

p1 Nominal price for caloric sweetened beverages, $/gal 2.62 0.17 2.32 3.04

p2 Nominal price for diet beverages, $/gal 2.00 0.16 1.69 2.35

p3 Nominal price for skim milk, $/gal 2.80 0.26 2.46 3.72

p4 Nominal price for low-fat milk, $/gal 2.77 0.28 2.43 3.70

p5 Nominal price for whole milk, $/gal 2.98 0.31 2.61 3.96

p6 Nominal price for juice, $/gal 4.36 0.44 3.68 5.55

p7 Nominal price for coffee/tea, $/gal 4.03 0.33 3.17 4.76

p8 Nominal price for bottled water, $/gal 1.40 0.16 1.04 1.63

w1 Beverage budget share for caloric sweetened beverages 0.34 0.03 0.28 0.40

w2 Beverage budget share for diet beverages 0.16 0.01 0.14 0.20

w3 Beverage budget share for skim milk 0.06 0.01 0.04 0.07

w4 Beverage budget share for low-fat milk 0.14 0.01 0.12 0.16

w5 Beverage budget share for whole milk 0.06 0.01 0.05 0.07

w6 Beverage budget share for juice 0.16 0.01 0.13 0.19

w7 Beverage budget share for coffee/tea 0.02 0.01 0.01 0.04

w8 Beverage budget share for bottled water 0.06 0.02 0.03 0.11

φ1 Average U.S. monthly temperature 54.37 14.93 28.68 77.26

St. Dev.=Standard deviation.

$/gal=Dollars per gallon.

Sources: Prices and budget shares are ERS calculations based on Nielsen Homescan (1998-2007). Temperature is measured in Fahrenheit 

(NOAA, 2009). 
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Appendix table 4

U.S. beverage demand elasticities, 1998-2007

 Expenditure

 Uncompensated price elasticities elasticities

Beverage εi1 εi2 εi3 εi4 εi5 εi6 εi7 εi8 εi

Caloric sweetened 

 beverages -1.264*** -0.192*** 0.023 0.015 0.028 0.233*** -0.027 0.131*** 1.054***

 (0.089) (0.048) (0.016) (0.036) (0.023) (0.045) (0.019) (0.035) (0.041)

Diet beverages -0.457*** -0.753*** 0.042 0.064 -0.165*** 0.096 -0.020 -0.044 1.238***

(0.103) (0.106) (0.026) (0.052) (0.042) (0.071) (0.031) (0.057) (0.051)

Skim milk 0.198** 0.184** -0.830*** -0.015 0.371*** -0.432*** -0.061* -0.296*** 0.880***

 (0.097) (0.076) (0.166) (0.190) (0.149) (0.084) (0.033) (0.058) (0.046)

Low-fat milk 0.115 0.144** -0.003 -0.707*** 0.055 -0.277*** 0.037 -0.187*** 0.822***

(0.088) (0.061) (0.076) (0.138) (0.105) (0.064) (0.025) (0.045) (0.047)

Whole milk 0.222* -0.371*** 0.332*** 0.119 -1.122*** -0.253** -0.049 0.281*** 0.841***

(0.126) (0.108) (0.133) (0.231) (0.243) (0.113) (0.044) (0.077) (0.059)

Juices 0.557*** 0.159** -0.151*** -0.248*** -0.102** -1.012*** 0.006 -0.087* 0.878***

 (0.095) (0.071) (0.029) (0.055) (0.044) (0.090) (0.028) (0.051) (0.048)

Coffee/tea -0.383 -0.103 -0.149** 0.179 -0.139 0.011 -0.451*** -0.018 1.053***

(0.264) (0.207) (0.075) (0.141) (0.115) (0.188) (0.121) (0.155) (0.125)

Bottled water 0.749*** -0.088 -0.284*** -0.460*** 0.282*** -0.255* -0.007 -0.969*** 1.032***

 (0.196) (0.153) (0.053) (0.102) (0.080) (0.135) (0.062) (0.157) (0.100)

Notes: ***, **, and * indicate a level of signifi cance of 1, 5, and 10 percent, respectively. Standard errors are in parentheses. Highlighted numbers 

indicate uncompensated own-price elasticities; all other uncompensated elasticities are cross-price estimates.

Source: ERS calculations based on Nielsen Homescan data, 1998-2007.

-0.451*** 

-0.969***