Pass-through and competition: the impact of soft drink taxes as seen through Mexican supermarkets | Latin American Economic Review

In January 2014, Mexico addressed its epidemic of obesity by implementing an excise tax of 1 peso (1 MXN) per liter on soft drinks. This study evaluates the pass-through of the tax, the influence on the tax of competition among different stores, and the after-tax price dispersion. Using an unbalanced panel of weekly prices for 553 stores throughout Mexico, we estimate that the tax increases the per-liter price of soda by 1.12 pesos, of juice by 0.25 pesos, of sports drinks by 1.52 pesos, and of powdered drink mixes by 0.24 pesos. Using information on store locations, Raymundo M. Campos-Vázquez & Eduardo M. Medina-Cortina calculate the degree of competition faced by each store and find that with greater competition in the relevant market, there is less overall pass-through, although the results for individual drink types are statistically significant only for sodas. For those stores facing the greatest competition, the pass-through effect is perfect shifting. We also find that markets with greater competition show a lesser degree of price dispersion.

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Latin American Economic Review aims to be the leading general interest journal on topics relevant to Latin America. The journal welcomes high-quality theoretical and quantitative papers on economic, social and political-economy issues with a regional focus. Articles presenting new data bases or describing structural reforms within a rigorous theoretical framework will also be considered. A few (illustrative) examples of topics that may be of special interest to this journal include: inflation, informal sector, corruption, crime, drug policy, unions, social exclusion, price controls, energy and environmental policy, natural resources, and technology transfer.

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