Do taxes on groceries increase body weight and restaurant food expenditures? Theory and evidence from the PSID data

We examine the impacts of grocery food sales taxes on body weight, grocery food expenditures, and restaurant food expenditures from both a theoretical and empirical perspective. Theoretically, grocery taxes affect food expenditure allocations by changing the prices of grocery foods relative to restaurant foods consequently influencing body weight because restaurant foods are generally higher in calories and less healthy. This theory is tested empirically using six waves of Panel Study Income Dynamics (PSID) panel data conducted from 2007 through 2017. We find that increases in grocery taxes relative to restaurant taxes incentivize low-income households to substitute restaurant foods in place of grocery foods. The results indicate that a one-percentage-point increase in the grocery tax rate relative to the restaurant tax rate leads to an increase in the body mass index (BMI) of 0.061, which translates to a weight gain of about 0.361 lb. This result is largely driven by overweight individuals and low-income individuals who do not participate in the Supplemental Nutrition Assistance Program. These are the two most vulnerable cohorts of the general population to grocery taxes.