Taxing sugar-sweetened beverages in China: By volume or sugar content? A consumer welfare approach

Using scanner data on the consumption of packaged liquid beverages by Chinese urban households, we estimated the price elasticity of various beverages and compared the effects of volume-based versus sugar-content-based taxation strategies on consumer welfare. Compared to the volume-based tax, the sugar-content-based beverage tax was predicted to cost less in compensating variation under the same amount of sugar reduced, indicating that taxation based on sugar content may be more efficient in preserving consumer welfare. Further comparison across different socioeconomic groups reveals that, given current beverage consumption status in China, the efficiency advantage of the sugar-content-based taxation strategy is more pronounced than that of the volume-based taxation. Our conclusions can provide insights for the food industry and the government to reduce the sugar content in beverages.