The short-run impact of taxing saturated fats

Saturated fats are bad, and we should avoid them. But they are cheaper than non-saturated fats, and if they are that bad, the obvious solution is to impose a tax on the bad ones so that they become more expensive than the good ones. Or you could inform users so that they make the best choice, but you still need to tax if the consumption of bad fats has an impacts on others, as in increased demand for health care that is paid at least in part by public funds. One way or the other, you need to tax saturated fats. The question is how much do you need to tax, and before answering that question you need to know how responsive people are to such taxes.

Jørgen Dejgård Jensen and Sinne Smed study this last question for Denmark, where a tax was introduced in October 2011. That was very recently, so they can only figure out the short-term elasticity. They find that for the products containing the most saturated fats, such as butter and oils, quantities sold decreased by 10-20% for an increase of tax in the order of 8 to 22% (it varies because the nutrient is taxed, not the food class). That looks a significant elasticity for foods that are quite essential to cooking. But as I mentioned in the introduction, another way of reduction consumption of "bad" foods is to inform the public. I suspect this what also happened with the introduction of this tax, as the media must have written about it and made many people aware of the adversarial effects of saturated fats. With the current empirical strategy, there is no way the authors can identify the impact of the tax from the impact of information, and that is likely why the elasticity is so high.