SSB Taxation and Reformulation: A Structural Model of Impacts and Industry Response

Excessive consumption of sugar-sweetened beverages (SSBs) is associated with obesity and diet-related diseases, prompting several European countries to introduce SSB taxes as public health measures. However, their effectiveness remains debated, particularly regarding firms’ strategic responses. This study provides an ex-ante evaluation of alternative SSB tax designs, comparing three schemes: a flat tax (€0.10/liter above 25g sugar/liter), as proposed in Italy; a proportional tax on sugar, as in Finland; and a two-tier tax (high rate over 80g/liter, low rate between 50–80g/liter), as in the UK and Ireland.We use Household Panel data on SSB purchases in Italy (Jan. 2019–Dec. 2020), covering over 9,000 households, to estimate demand through a random coefficients logit model. To capture heterogeneous responses, households are grouped by income and the presence of children. Assuming Nash-Bertrand competition, fixed retail markups, and constant marginal costs, we simulate counterfactual market equilibria under each tax scenario, assessing impacts on prices, market shares, consumption, and welfare. We also model exogenous product reformulation, assuming firms reduce sugar content to the maximum technically and sensorially feasible level to minimize tax exposure. Results show that tax design plays a crucial role once firms adjust product characteristics. While different schemes yield similar consumption reductions without reformulation, their effectiveness diverges when firms respond strategically. Proportional taxes provide continuous incentives to reduce sugar content, leading to larger reductions in total sugar intake. Tiered taxes generate threshold-based incentives, potentially limiting reformulation. The Italian sugar tax, with a low threshold and flat rate, applies broadly but provides weak incentives for reformulation, as reducing sugar content may significantly affect product taste. Overall, tax structure—rather than tax level alone—is key to policy effectiveness.

Key messages

• Tax schemes reduce SSB consumption and sugar intake, but their effectiveness depends on incentives for reformulation.

• Reformulation mitigates declines in consumption and may reduce regressive effects.