The impact of sweet food tax on producers and household spending—Evidence from Hungary

Abstract Since 2011, a wide range of unhealthy food and drink are subject to a specific excise tax in Hungary. We analyze how this tax affected the revenue, sales volume, personnel costs, and size of sweet food producers, and compare these results to estimated effects on household spending on sugary food. We base our analysis on administrative data sets of firm level indicators, and survey data on household spending. We apply the estimation method of difference‐in‐differences, where firms producing untaxed processed food (in the firm level analysis) and household spending on food categories directly not affected by the tax (in the household level analysis) serve as control groups. Our results suggest strong negative short‐run effects of the unhealthy food tax on firms’ inland sales volume, and moderate effects on inland sales revenue and personnel costs. These results correspond to the moderate estimated effects on household spending on sugary food. The reducing effects diminish in about 3 years after the introduction of the tax—overlapping with the recovery of the Hungarian economy from recession. Our findings suggest that the impacts of an unhealthy food tax strongly depend on the economic conditions.