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October 25, 2017

Airport study finds 'natural experiment' for Philly soda tax

Nearly a year after its implementation, Philadelphia's soda tax remains a subject of controversy among local policymakers and businesses.

Exactly what effects the tax is having on consumers and businesses will continue to be a point of emphasis for supporters and opponents in the months and years to come. Because sugar-sweetened beverage taxes are relatively new and varied in the United States, pinning down the right methodology to approach their impacts presents a complex challenge for researchers.

For Philadelphia, a geographical quirk provided an interesting case study on the business side of the equation. Since Philadelphia International Airport straddles Philadelphia and Delaware counties, the 1.5-cents-per-ounce city tax does not apply in Terminal A, which sits within Tinicum Township.

Cornell University economist John Cawley, intrigued by the opportunity to conduct "natural experiment" on pricing, chose to visit airport retailers both before the tax's implementation and twice after it took effect. Would the businesses in Terminal A keep their pre-tax prices in place or hike them to match the prices in the airport's tax zone?

On each visit, Cawley's team purchased a 20-oz. bottle of regular Coke or Pepsi, or a fountain drink at four stores that didn't sell bottles. Only retail chains — bakeries, restaurants and newsstands — with locations on both sides of the airport were examined as part of the study.

Cawley sought to determine how much of the tax on distributors was being passed on to consumers in form of higher prices, as well as whether the Terminal A retailers would mirror the prices in the rest of the airport.

The results from 31 stores — 21 on the Philadelphia side and 10 on the Tinicum side — found that some of the Terminal A retailers still raised their prices, possibly in response to the 0.91 cents-per-ounce price increase among taxed distributors as early as January.

“It was impossible to predict in advance whether the untaxed side of the airport would limit the pass-through of the tax on the Philadelphia side, or whether the untaxed side would take advantage of Philadelphia’s tax to raise prices themselves," Cawley said.

By February, retailers on the taxed side of the airport had increased their prices by an average of 1.39 cents-per-ounce, representing a pass-through of 93 percent.

These findings, though limited, are significant in comparison to the 43-69 percent pass-through found in Berkeley, California, whose penny-per-ounce tax was the first to take effect in the United States.

"Future studies should investigate explanations for this difference and examine how the Philadelphia tax affected the purchase and consumption of [sugar-sweetened beverages] and the health of consumers," the researchers suggested.

The study, published Wednesday in the Journal of the American Medical Association, can be found here.