Policy is hard

Did you know obesity is a problem? Did you know that saturated fat is bad for you?

Why don’t we start taxing fat? Revenue goes up and fat intake goes down. Two birds with one stone! They did that in Denmark. Didn’t work so well:

Danish lawmakers have killed a controversial “fat tax” one year after its implementation, after finding its negative effect on the economy and the strain it has put on small businesses far outweigh the health benefits.

Nations including Switzerland, the U.K, and Germany have held up the tax, which applies to any food containing more than 2.3% saturated fat, as a potential model for addressing obesity and other health concerns. But in Denmark, it has been a source of pain for consumers, food producers and retailers as the nation’s economy struggles.

One problem is that when you target just one thing that causes obesity, people can just switch to another:

The fat tax was created in 2011 to address Denmark’s rising obesity rates and relatively low life expectancy. There is little evidence the tax impacted consumers financially, but it did spark a shift in consumer habits. Many Danes have bought lower-cost alternatives, or in some cases hopped the border to Germany, where prices are roughly 20% lower, or to Sweden.

“Since the introduction of the new tax the demand for butter has risen,” Lars Aarup, head of analysis at FDB, a dominant retail chain operator in Denmark, said. He notes that one factor driving demand is the emergence of a cooking show in which the hosts stress how desirable using butter is. “That might outweigh the effect of the tax.”

I alluded to this before, when I noted that it seems odd to say a 17 ounce soda should be banned, but not the 3000 calorie meal it might accompany. Or a 17 ounce beer for that matter. Another problem is that people can just go get what they want somewhere else:

Peter Giørtz-Carlsen, head of the Danish consumer market at Arla Foods—the country’s largest dairy company—said the fat tax has driven consumers toward lower-quality cheeses.

The Sky supermarket located in northern Germany was one company benefiting from the trend. Last week, more than half the cars in the crowded parking lot had Danish license plates.

“We did not use to buy cheese here, but the price difference for our favorite type is now more than 30%,” Anitha Nissen said, while helping her husband load groceries into their silver Suzuki. The Danish couple now crosses the border three or four times a year to stock up on goods.

This is obviously bad for local businesses. And for the economy.

I’ve never been a big fan of things like the soda ban. I’ve never even been really sold on the sugar tax. Going after a nutrient seems awfully complicated to me. This report doesn’t help to change my mind. One thing, however, did impress me in this story:

The fat tax comes to an end after netting an estimated €170 million ($216 million) in 2012 in new revenue. Danish lawmakers will slightly raise income taxes and reduce personal tax deductions to offset the lost revenue. The lawmakers also decided on Saturday to reverse an earlier decision to create a sugar tax.

The fact that Denmark can make decisions on taxes this fast, and change tax policy to make up for lost revenue in the blink of an eye, is a model of legislative efficiency. Almost made me cry.


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