Maxime Tranchard

Policymakers have increasingly implemented nutritional taxes to influence consumer behavior toward healthier diets. While theoretical and empirical literature suggests that taxes should be proportional to the harm caused, most taxes implemented to date, including sugar taxes, feature tiered rather than linear designs. This discrepancy between theory and practice raises the central question: can tiered sugar taxes, under imperfect competition and market power, be welfare-optimal, and if so, how should their structure be designed? In this paper, we evaluate the economic performance of tiered sugar tax designs compared to the theoretically optimal linear tax. Using a welfare maximization framework, we account for externalities from excess sugar consumption, heterogeneous consumption patterns, and firms' strategic pricing behavior. Our findings reveal that tiered tax designs, when incorporating strategic responses from firms, can lead to significantly greater welfare improvements than linear taxation or the implemented Soft Drinks Industry Levy in the UK. Specifically, the optimal design features higher taxes on high-sugar products, prompting firms to reduce prices on lower-sugar alternatives. This adjustment not only enhances public health outcomes but also increases consumer surplus and preserves firm profitability. These results suggest that tiered sugar taxes can serve as welfare-enhancing policy tools when designed to reflect both consumer heterogeneity and market competition.

Governments are increasingly using food taxes to combat diet-related diseases. While taxes on sugar-sweetened beverages have proven effective, similar measures for other food categories remain underused. This study evaluates the potential effects of a tiered sugar-based excise tax on the French desserts market, covering compotes, yogurts, "fromage blanc"/"petits suisses" and other dairy desserts, that contribute substantially to sugar intake and show wide variation in sugar content. We estimate a structural demand and supply model that incorporates firms' strategic pricing responses and the possibility of reformulation under technical and regulatory constraints. Assuming firms reformulate to avoid the tax, we also account for consumer responses to changes in prices and taste. A €0.67 tax on desserts with more than 12 g of sugar per 100 g would reduce purchases by about 10% and sugar intake by 22%. The tax generates inter- and intra-category substitution effects, redirecting demand towards reformulated or initially lower-sugar options. The impact differs across households: more than a quarter of people cut their sugar intake by more than three teaspoons per week. Firms amplify the tax's effect by passing on more than its value to consumers. Compared to a no-reformulation scenario, taxation combined with reformulation leads to smaller sugar reductions but lowers economic costs for consumers and firms. Reformulation thus plays a decisive role in acceptability, balancing health benefits with social and economic concerns. These findings highlight the need for taxes that incentivize reformulation to achieve health gains while ensuring policy support.

A growing number of countries have introduced taxes on products with high sugar content. Existing empirical evidence has primarily focused on price pass-through and demand responses, showing that the transmission of the tax to retail prices is heterogeneous across products and market environments. However, fiscal policies that target product composition also create incentives for firms to modify product characteristics. Ignoring these quality responses may therefore lead to an incomplete assessment of the effects of such policies. In this paper we develop and estimate a structural demand and supply model that integrates firms' price and quality responses to sugar taxation in a differentiated-product market. The model allows manufacturers to compete in prices while endogenously adjusting product sugar content, subject to fixed reformulation costs. Using household purchase data from the Kantar WorldPanel combined with detailed nutritional information from the Oqali database, we study the potential implementation of a linear tax on sugar in the French dessert market. Our framework recovers product-level lower bounds on reformulation costs from observed equilibrium behavior and embeds them in a counterfactual analysis of a sugar tax. We show that accounting for endogenous reformulation is crucial. When product characteristics are held fixed, the tax mainly operates through demand reallocation and price adjustments. Once reformulation is taken into account, a large share of the reduction in sugar consumption comes from changes in product composition rather than from substitution across existing products, and the contraction of the market is substantially attenuated. The equilibrium response is highly heterogeneous across product categories and firms, reflecting differences in margins, baseline sugar content, and reformulation costs. These results highlight that the effectiveness of taxes depends not only on price changes but also on firms' incentives and ability to adjust quality. More generally, the paper provides a tractable structural framework to study quality adjustment in response to fiscal policies in industries where changing product characteristics is infrequent and costly.