All You Never Knew About Denmark’s Fat Tax

At the end of 2011, Denmark got a fat tax. Today, they still cannot decide if it worked.

The Skinny on Denmark’s Fat Tax

Denmark’s lawmakers thought they had a “win-win” through a tax on food with more than 2.3% saturated fat. If shoppers still purchased butter, cheese, and other fat-laden goodies like pizza, then the country got the revenue. If they stopped buying them, there would be less obesity.

What really happened though was not quite what the politicians wanted. Some shoppers sidestepped the levy by stocking up on fatty foods during shopping visits to Germany. Others switched to lower quality cheeses. At the same time, to avoid higher prices, producers were shrinking package sizes and complaining about their own elevated costs. The final result was no tax. After only 15 months, they canceled it.

Now they are debating its impact.

Some cite statistics that indicate the tax was ineffectual. Responding to researchers who say buying was down, they claim that hoarding was up:

Using different numbers, a second group said the tax saved lives because people bought 4% less saturated fat and more vegetables. (They did though use more salt.) The one sure thing is the extra €170 million or so ($216 million) the tax generated in 2012.

Our Bottom Line: The Economics of the Fat Tax

Four economic ideas could help you decide your fat tax opinion,

• The tax is regressive. True for all sales taxes, the poor pay a higher percent of their earnings than those who are more affluent.
• The tax is Pigovian. While generating revenue, it dissuades people from harmful consumption.
• The tax creates the incentive to switch to substitute goods. That means your demand curve for a substitute good shifts to the right. The reason? The item with the tax is more expensive.
• And finally, behavioral economists would say we have the perfect example of confirmation bias. Everyone seems to be cherry picking facts. If you liked the tax from the start, then you chose facts to prove you were correct. On the other side, the same attempt to confirm a bias was evident.

So where are we? Nations and smaller municipalities continue experimenting with food and drink taxes.

My sources and more: Some fat tax basics are here from WSJ. Then, for the con side of the Denmark tax, do look at the UK’s Spectator whereas here is the yes side from an NYU nutrition professor and euractiv.