INTRODUCTION
Research background
In comparison with 1975, the prevalence of overweight and obesity (O&O) worldwide in 2016 was said to be nearly tripled It is estimated that until 2016, 39% of adults were overweight, 13% of adults were suffering from obesity whereas more than 18% of children and adolescents between 5 and 19 years old were obese (World Health Organization, 2018) In parallel with higher living conditions, nowadays, the number of deaths that related to O&O are now more than that caused by underweight
Basically, the reason of this non-communication disease (NCD) is said to be the imbalance between intake and outlet calories as well as the insufficiency physical activities and so on (World Health Organization, 2018) Among products that contain high calorie intake, sugar-sweetened beverages (SSBs) was said to be one of the main reasons for O&O because its ingredients have a high amount of free sugar (World Health Organization, 2015) Based on this argument, around 40 countries and territories in the world has levied some specific tax policy on SSBs in order to increase the price and then reduce consumed amount of this kind of beverages
(Global Food Research Program, University of North Carolina at Chapel Hill, 2018)
From a poor country which had been severely destroyed by war, Vietnam has rapidly developed In 2018, the poverty rate according to multi-dimension approach was only 6.8% (General Statistics Office, 2018a) in comparison to 58% in 1993 and 75% in
1990 (World Bank, 2002) Parallel with successful economic achievements, Vietnam is also facing to some problems such as the increasing of the prevalence of O&O, particularly among children and adolescent in urban areas According to a survey conducted by Ministry of Health, the ratio of Vietnamese adults (18 to 69 years old) who are suffering from O&O (Body Mass Index – BMI ≥ 25) is 15.6%, in which14.9% of men and 16.9% of women) The situation seems worse than 5 year before when these ratios in 2010 were 12.5% of men and 11.4% of women In addition to that, Vietnam Health Scheme has set the target for the percentage of adult who suffers from O&O under 12% until 2025 and under 10% until 2030 (Vietnam Prime Minister, 2019), which means that Vietnamese authority has a lot of things to do to deal with this situation The rising trend was also observed among children and adolescents, with the prevalence of O&O among both genders increased from 2.6% in 2002 to 9.7% in 2016 (The Department of Preventive Medicine, 2017) In big cities such as Hanoi and Ho Chi Minh city, the ratio of children and adolescents who are suffering from O&O was 43% in 2009, increased from 12% in 1996 In 2014 – 2015, this ratio in the inner area of Ho Chi Minh city was 50% and a recent survey in the inner area of Hanoi showed that it was up to 40.7% (Hanoi Health Department, 2017)
Although the average BMI of Vietnamese was still far less than O&O threshold, there are existing a concern that Vietnam may reach this ceiling soon
As an effort in improving Vietnamese health condition, Ministry of Finance (MOF) had introduced a new excise tax applied on SSBs with the tax rate at 10% or 20% in
2016 According to Lax on Excise tax of Vietnam, excise tax is a tax that is applied on specific goods and services that (i) are not encouraged due to their bad effects on health; (ii) are normally consumed by high-income consumers in the society; (iii) are unnecessary services (Vietnamese Assembly, 2008) The rationale for levying excise tax was its high-containing sugar amount in each item, which is one of the reasons for O&O in Vietnam and around the world Added to that, imposing excise tax on SSBs is a new trend in the world and being strongly encouraged by international health organizations, such as WHO This was a part of Six-Tax-Law Amendment in order to reform tax system in Vietnam The tax law was introduced in the context of increasing government budget deficit and high public debt ratio in Vietnam, which was reflected by figure 1.1 Therefore, this reforming scheme was expected to increase government revenue and solve these problems
Figure 1.1: Government budget and public debt in Vietnam 2011 – 2016 Data for the Ministry of Finance (2012, 2013a, 2013b, 2013c, 2014a, 2014b, 2015, 2016a, 2016b, 2017a, 2017b)
Research Objective and Research Question
The objective of this paper is to estimate the consumption impacts of imposing SSBs’ excise tax in Vietnam It will focus on the main research question “How does excise tax on SSB impact on Vietnamese consumers?” and below sub-questions:
▪ To what extent excise tax on SSBs influence on consumers of this kind of product?
▪ If then this tax policy is implemented, what should Vietnamese government pay attention to, from perspective of consumption?
Government Revenue (%GDP) Government Expenditure (%GDP)Government Budget Deficit (%GDP) Public Debt (%GDP)
LITERATURE REVIEW
An overview of sugar-sweetened beverage
According to World Health Organization (WHO), free sugar, which is usually added to foods and beverages or naturally contained in honey, syrups and fruit juice and its relative products, includes monosaccharides and (C6H12O6) and disaccharides (C12H22O11) It has been proved that higher intake of free sugar provides significant energy to diets without specific nutrients, which may harm to the balance of their intake energy That is one of the reasons for O&O in recent years In addition, free sugar in foods and beverages is also related to dental caries Therefore, the intake of free sugar should be limited to 10% of total energy intake in near future and to less than 5% in further (World Health Organization, 2015)
SSBs include, but are not limited to sport drinks, energy drinks, lemonade or fruit drinks, sweetened iced tea, vitamin water drinks and carbonates drinks, which contain added caloric sweeteners, for example, sucrose, high-fructose corn syrup (HFCS), which is produced from corn syrup (glucose) or fruit-juice concentrates It is said that SSB is one of the highest free sugar containing products In case of Vietnam, the governmental authority has not given any official definition of SSB However, according to WHO, SSB referred to any beverage item containing added sugars, for example sucrose of high fructose corn syrup (Lobstein, 2014) This ingredient will create a sweet flavor to beverages and satisfy consumers’ taste
In combination with insufficient physical activities, SSBs could causes to obesity and diabetes because it leads to the excess of intake calorie, particularly to children, adolescents and adults (World Health Organization, 2016) Furthermore, obesity will affect to human lives and health on different dimensions, physical health, mental health as well as social and spiritual aspects as figure 2.1 (Djalalinia, Qorbani, Peykari,
& Kelishadi, 2015) That is the rationale for governmental intervention into food and beverage industry
Figure 2.1 Health impacts of obesity Reprinted from Health impacts of obesity by Djalalinia, Qorbani, Peykari, & Kelishadi (2015)
Taxing sugar-sweetened beverages
There are two main kinds of policy tools that government can utilize to improve diet, they are taxation and subsidies By taxing on unhealthy food and subsiding for healthy food, consumer will be encouraged to gradually change their consumed baskets to healthier products Then, it is hoped that this transformation can make significant effects on food industry and society The mechanism of how tax and subsidy on food and beverage effect on consumption was expressed by figure 2.2
Figure 2.2 Pathway for the effect of fiscal policy intervention Reprinted from Fiscal Policies for Diet and Prevention of Noncommunicable Diseases: Technical Meeting Report by World Health Organization (2016)
In relation to SSBs, many countries are applying tax on this kind of products There are two types of tax: ad-valorem and specific tax Many countries are imposing an ad-valorem tax on SSB, which means that the tax rate is calculated as a percentage of product value As a result, the price of SSB will be relatively higher than other products Whereas, a specific tax is fixed at a constant by unit For example, in Mexico, tax on SSB is 10 Mexico dollars by unit In general, both kind of taxes aim to increase relative price of SSBs in expectation to decrease their consumed volume
Increased purchase and consumption od healthy foods
Decreased purchase and consumption of less healthy food
Financial implications for manufactures and producers – incentive for decreased production and reformulation
Decreased diet- related risk factors for
Financial implications for manufactures and producers – incentive for increased production
Tax and/or subsidy – incentives for substitution with healthier foods and beverages
Revenue generation: potential healthcare/ health promotion funds
Rationale for taxing SSBs is related to their negative impacts on health as mention above To be more detailed, Lustig and his colleagues have pointed out four characteristics of SSBs that are similar to tobacco and alcohol that make them to be taxed and regulated Firstly, it is said that sugar is unavoidable, but rather than natural-made, man-made sugar is becoming more popular than ever before and is added to nearly all processed food Secondly, the toxicity of sugar has been mentioned by giving that excessive sugar consuming induce disease related to metabolic syndrome such as hypertension, high triglycerides and insulin resistance, diabetes and aging process Added to that, it is doubted that it also links to cancer and cognitive decline Thirdly, sugar is potential for abuse because it signals brain to consume more and make impacts on the feeling of satiety Finally, as consequence of healthcare and human costs of metabolic syndrome, consuming excessive amount of sugar possibly cause bad effects on society (Lustig, Schmidt, & Brindis, 2012)
From perspective of public health, there are several ways to intervene into choices of consumers The figure 2.3 shows a framework to conduct a public health campaign
The 5-tier health impact pyramid describes how different in the impacts of public health intervention methods and can be a framework for public action that related to improve public health The first tier of this pyramid is socio-economic factors, which refers to address socio-economic status and educational status that are important determinants of health The second tier of pyramid is to change the context to encourage healthy decision, which suggests the interventions to make the healthy choice become the default choices of citizens, without concerning on societal factors like education or income The third one mention on long-lasting protective interventions, which no longer reaches people collectively but is an individual choice
The next level is clinical interventions and the highest is counselling and educational interventions The interventions belong to lower level of pyramid are said to be more effective in changing citizens’ habits due to wide range of impacts, whereas the higher levels are depended on individual decisions and require more personal autonomy, of which people are normally lack (Frieden, 2010) The SSB excise tax belongs to second tier because it leads to an increase in price and make number of consumers decrease, which means that SSB is not the default choice of some people
Figure 2.3 The 5-tier health impact pyramid Reprinted from A Framework for Public Health Action: The Health Impact Pyramid by Frieden (2010)
In case of Vietnam, SSBs are considered to be imposed excise tax (or special consuming tax), which is defined as a tax that is applied on goods or services that (a) are not encouraged because of their bad effects on health; (b) are normally consumed by high-income consumers; and (c) are unnecessary services (Vietnamese Assembly,
2008) According to proposal by Ministry of Finance (MOF), an ad-valorem tax at
10 or 20% should be applied on SSBs because of their bad effects on health On the view of MOF, they prefer the first plan (The Ministry of Finance, 2017c).
Discussion over excise tax on SSBs
Despite of positive policy objectives, this tax policy has raised fierce controversy and dialogue not only among researchers, policy makers but also community around the world Both sides, approval and opposition, have their own opinions to protect their arguments against the another and Barry, Niederdeppe, & Gollust (2013) In the research in 2017, the author based on the opposing arguments to SSB excise tax given by Autralian Beverages Council, which is a lobby group for sugary beverage
Counseling and education Clinical intervention
Changing the context to encourage healthy decision Socio-economic factors
Increasing population impact Increasing individual effort needed enterprises, to counter This organization tried to keep the tax away from policy table, so the author of the research had to establish the counterpoints for the opposing arguments, depended on the actual SSB consumption situation in Australia Another public opinion survey conducted by Barry, Niederdeppe, & Gollust showed that American citizens tend to agree with pro-tax than anti-tax arguments because they believed that the tax would not affect to the consumption of unhealthy products (60%), the tax was just a way to fill in the government budget (58%) The majority of them also thought that it was unacceptable way for government to intervene into their lives (53.8%), would be opposed by most of American (53%) and had bad effects on the poor (51%) However, some of them said that the tax contributed largest to O&O (49%) and helped to raise budget for prevention this NCD (41%) due to the severence in the suffering of O&O in this country
Table 2.1 summarizes the key arguments regarding to SSB excise tax around the world, which were summarized by Backholder and Martin (2017) and Barry, Niederdeppe, & Gollust (2013) In the research in 2017, the author based on the opposing arguments to SSB excise tax given by Autralian Beverages Council, which is a lobby group for sugary beverage enterprises, to counter This organization tried to keep the tax away from policy table, so the author of the research had to establish the counterpoints for the opposing arguments, depended on the actual SSB consumption situation in Australia (Backholer & Martin, 2017) Another public opinion survey conducted by Barry, Niederdeppe, & Gollust showed that American citizens tend to agree with pro-tax than anti-tax arguments because they believed that the tax would not affect to the consumption of unhealthy products (60%), the tax was just a way to fill in the government budget (58%) The majority of them also thought that it was unacceptable way for government to intervene into their lives (53.8%), would be opposed by most of American (53%) and had bad effects on the poor (51%)
However, some of them said that the tax contributed largest to O&O (49%) and helped to raise budget for prevention this NCD (41%) due to the severence in the suffering of O&O in this country (Barry, Niederdeppe, & Gollust, 2013)
Table 2.1 Controversy over SSB excise tax
Note: Reprinted from Commentary: Sugar-sweetened beverage tax: The inconvenient truth by Backholer & Martin (2017) and Taxes on Sugar-Sweetened Beverages:
ANTI-TAX ARGUMENTS PRO-TAX ARGUMENTS
• Reason of O&O is not only SSB
• Free sugar consumption is declining
• SSB is the largest contributor to O&O
• SSB encourages people to consume more
• Quick way to fill in budget holes • Raising government revenue
• Unacceptable government intrusion into personal lives and individual choices
• SSB companies manages consumption decision by marketing strategy
• The tax policy has low public support
• Tax on SSB reduces the bad effects of SSB, which was dissimulated by SSB companies in their marketing strategies
• The tax policy is failed in some countries
• Take time to measure its long-term effects
• Regressive tax and hurt the poor hardest
• Protect the poor by making them to reduce consumed volumes
• The difference of the effects of tax on between the rich and the poor is not much
• Hurt the economy • Equalize the cost between unhealthy and healthy drinks
• SSB industry has supported to reduce O&O by calorie information on packages, removing SSB from school in some countries
• Tax on SSB will result more
• Job lost • Increase the production in non-sugar drink industry
• The reinvestment of revenue will create job in other sectors
Result from a 2011 National Public Opinion Survey by Barry, Niederdeppe, &
Theoritically, the tax policy had both positive and negative impacts on the socio- economy, which had been foreseen in many researches However, these impacts were different depending on the characteristics of each region or country.
Consumption Impacts of Excise tax around the world
Officially, it was been recorded that tax on soft drinks like SSB had been placed since 1930s in Denmark (The Department of Health, Social Services and Public Safety of Northern Ireland, 2015) Taxing SSB is now becoming popular around the world due to its negative effects on health, especially among countries which are having severe O&O According to a Research Program on global food, there are 41 countries and territories are now issued this regulation, which will be showed by figure 2.4 To be more detailed, the effective date, tax rate and taxed items in each country was showed in Annex 1
Figure 2.4 Map of cities and countries that are implementing taxing sugary drinks
Reprinted from Sugary drink taxes around the world by Global Food Research
Program, University of North Carolina at Chapel Hill (2018) Retrived from http://globalfoodresearchprogram.web.unc.edu/files/2018/11/SugaryDrink_tax_ma ps_Nov2018_global.pdf
Different countries choose different kinds and level of tax to regulate sugary beverages Among countries that imposed the tax policy, most of them are now continuing the policy, whereas Denmark, one of the first countries intervening into food market has abolished their “fat tax” after fifteen-month of implementation (World Health Organization, 2016) The reason is related to its negative effects on Danish socio-economic In reality, there are many studies researching on the tax effects in above countries It has been proved out that this tax policy has both negative and positive effects The positive impacts of the tax policy include:
Firstly, it has been observed and demonstrated that the tax policy makes the price increase which lead to a decrease in the consumption
The case of Mexico should be a typical example for this outcome, which was proved out by few researches For example, a research by Grogger in 2015, which was focused on the price changes in post-tax period, had found out that after implementing, the tax policy had affected on the price of regular sodas and other sugary sodas by different levels To regular sodas, the tax took effect let the prices rise more than the amount of the tax whereas the prices or others sugary beverages rise less than that amount [Grogger, 2015] The increasing trend in price were agreed by a research team of World Bank However, this group simultaneously claimed that the prices were not high enough to move up prices of the whole market [Bonilla-Chacin, Iglesias, Suaya, Trezza, Macias, 2016] By comparing the observed consumed volume in post- tax period with the estimated volume in case of not issuing the tax policy, the observational study by Colchero et al after one-year implementation has shown that purchases of taxed beverages in 2014 had decreased by 6% in average at an increasing rate up to 12% by December 2014 The decreasing trend had been detected among three socio-economic groups, but the lower status group was affected more than the others, with an average at 9% decline in 2014 and up to 17% by December 2014
(Colchero, Popkin, Rivera, & Ng, 2016) Also focusing on price-change effects of the tax in Mexico, aimed to two different group of items, high caloric foods (HCF) and/or sugary drinks, Aguilar et al have found that the price of sugary drinks had increased but more than 100 percent of tax had passed through on consumer prices After 2 years of implementation, they found that the purchased liters of sugary drinks decreased by 6% (Aguilar, Emilio, & Seira, 2016)
In France, in a study of Nutrinet for the General Directorate of Health in 2013, soda consumption has declined (World Health Organization, 2016) In Hungary, the country has already implemented a public health product tax (PHPT) since 2011, prices had increased and partly led to 26-32% of consumers who decrease the intake of subjected items (Martos, et al., 2015) In Berkeley (California), one of the first cities in America issued SSB tax, after four-month of implementation, the consumption of SSB had decreased 21% (Falbe, et al., 2016)
Secondly, there is a shift from SSB to healthier items A study by Martos et al in
2015 has shown that due to public health in Hungary, a lot of consumer choose to substitute their choices by healthier products, for example, mineral water accounted for 63%, fruity and vegetable drinks accounted for 82 – 86%, do-it-yourself sweet drinks accounted for 95%, and green herbs or spices accounted for 84% (Martos, et al., 2015) In Mexico, per capital consumption of bottled water increased (World Health Organization, 2016) In America, after four-month of implementation, the amount of water consumption in Berkeley raised more than compared cities, +63% in comparison with +19% (Falbe, et al., 2016)
Thirdly, the tax income contributes to government budget For example, in 2014, the tax help French raise €300 million (World Health Organization, 2016) In case of Hungary, SSBs contributed the highest proportion (65%) to the reported tax HUF 61.3 billion (approximately €200 million) of PHPT The second and the third is pre- packaged sweets and energy drinks with the proportion of 19% and 8%, respectively
Fourthly, the tax policy force food producers to reformulate their products For instance, the response of consumers to government’ public health scheme had made 40% of food producers reformulate their products, 30% of them remove and 70% of them decrease unflattering ingredients (Martos, et al., 2015)
Fifthly, the tax affected on targeted groups For example, in France, the change in behaviors regarding to the tax had been shown clearly among young people, households that has adolescents ang lower income group (World Health Organization,
2016) In Hungary, overweight and adolescent adult were more likely to change their behavior regarding to targeted products (1.8 – 2.7 times) in a positive way than the others (Martos, et al., 2015) In case of Mexico, the effects on different social status households were varied Aguilar and his colleagues proved that households with higher income were affected most (Aguilar, Emilio, & Seira, 2016) while Colchero et al said that household in low level of socio-economy have been affected largest (Colchero, Popkin, Rivera, & Ng, 2016)
Besides above positive results, there were several unexpected impacts of the tax had been recorded Despite of aiming to reduce the prevalence of O&O, there is nothing change in BMI and even higher after implementing the tax policy This fact has been claimed in Mexico (Aguilar, Emilio, & Seira, 2016) or Finland (Northern Ireland Assembly, 2015)
In Denmark, the authorities even had to abandon their “fat tax policy” due to several disadvantaged consequences The tax policy was said to be ineffective because it was not enough to make consumers change their consumed habits They could easily switch to cheaper products or do cross-shopping Added to that, the administrative cost was too high (10% of the tax revenue) and even led to lost 1,300 jobs (Snowdon,
Several studies have tried to estimate the own price elasticities of SSB in order to measure the impacts of SSB excise tax on consumption According to a systematic review on SSB excise tax in middle income countries like Vietnam in the period of
1990 - 2016, including Brazil, Ecuador, India, Mexico, Peru and South Africa, the author group had found out that the own elasticities of SSB in these nations varied from -0.6 to -1.2, which meant that when the price of SSB increased by 1%, the consumed amount would decline by 0.6 to 1.2% Moreover, the research also pointed out that whereas milk is a substitute beverage of SSB, food away from home (FAFH), candy and snack were complementary to SSB (Nakhimovsky, et al., 2016) Another systematic review by Andreyeva, Long and Brownell (2010) collected data from 160 studies related to price elasticities of foods and beverages in America from 1938 to
2010 showed that soft drinks have the elasticity from -0.8 to -1.0 (Andreyeva, Long,
& Brownell, 2010) The, several studies had also estimated the own price elasticity in American in different household group Lin et al (2011) estimated that own-price elasticity of low-income group in USA (-0.95) were lower than high-income group (-1.29) (Lin, Smith, Lee, & Hall, 2011) In UK, Brigg et al (2013) measured elasticity for low, middle and high-income group by -0.79, -0.80 and -0.85, respectively (Briggs, et al., 2013).
Previous Studies about Sugar Sweetened Beverages in Vietnam
Due to bad effects of sugary drinks on health, MOF had introduced excise tax on this kind of products since 2014, but this proposal only covered non-alcoholic carbonated sugary drinks Finally, because of strong oppositions of researchers, enterprises and citizens, the implementation of this tax policy had been postponed One of the most important bases for those protest was the research conducted by Nguyen Dinh Chuc
(2014) named “Soft drink industry and the economic impact of excise tax on non- alcoholic carbonated soft drink in Vietnam” In this research, Chuc had approached the issue from two directions – elasticity approach and general equilibrium approach
From elasticity approach, he tried to estimate price elasticity of SSB through the equation 1: ln 𝑌 = 𝛽 1 + 𝛽 2 ln 𝑃 + 𝛽 3 ln 𝑋 1 + ⋯ + 𝛽 𝑚 𝑙𝑛 𝑋 𝑛 + 𝛼 𝑘 𝑙𝑛(𝑋 𝑝 𝑋 𝑞 ) + 𝑒 (1)
In which, 𝑌 represents the quantity demanded of SSB, 𝑃 represents the price and 𝑋 𝑘 represent the control variables Using monthly volumes and values of soft drinks sold in the market of the six largest cities and provinces including Hanoi, Ho Chi Minh city, Da Nang, Can Tho, Hai Phong, Nha Trang from 2007 to 2013, Chuc has established regression result as equation 2:
In which, 𝑑𝐺𝐷𝑃, 𝑃 𝐸𝐷 , 𝑃 𝐹𝐽 , 𝑃 𝑃𝑊 , 𝑃 𝑆𝑀 , 𝑃𝑃 𝑆𝑆𝐷𝐸𝐷 represents the growth of GDP, price of energy drink, fruit juice, packaged water, soya milk and the interaction between its own price and price of energy drink, respectively The result showed that carbonated soft drinks were sensitive to price with its price elasticity at −2.8, which means that increasing 1% in price of this drink would lead to decrease 2.8% in demanded volume
From general equilibrium approach, he estimated the impact of the tax policy on the whole economy According to the results, taxing 10% on SSBs would results in 12.1 million dollars decrease in GDP, 8.46 million dollars increasing in government revenue, whereas the soft industry revenue might loss 40.5 million dollars On economical aspect, it showed that this tax policy had both negative and positive impacts on Vietnamese economy Besides measurable impacts, there might have some other negative consequences, employment effect, income effect, influences on other drinks and unknown administrative cost, for instance (Chuc, 2014)
In 2016, excise tax on unhealthy drinks was re-proposed but wider coverage to all sugary drinks MOF has proposed two alternatives, imposing excise tax on sugary drink at 10% or 20% tax rate However, it was more partial to the first option For the purpose of “Economic assessment of the possibility to apply the excise tax on non- alcoholic beverage products in Vietnam”, Phong, T N and Thai, P T has conducted a research in 2017, in which they had used The Almost Ideal Demand System (AIDS) to estimate owned-price elasticity of SSB in Vietnamese market, which had the formation as equation 3:
In which, 𝑤 𝑖 represents the proportion of i th product expenditure on the total expenditure of four drinks; 𝑝 𝑗 represents the price of four kinds of drinks, including beverages, milk, coffee and tea; 𝐻 𝑘 represents for dummy variables and household variables, including household size, age, education level, gender of household’s head, location and income group; IMR represents Inverse Mill’s Ratio, which relates to the decision of household to participate in the market or not (Phong & Thai, 2017)
Based on the outcomes of the model and literature review, they had assessed three out of five characteristics of a good tax policy according to Stiglitz (1986), including economic, simplicity and equality The result showed that the own elasticity of SSB was -2.7718, which means that if the price of SSB increased by 1%, the demanded quantity would decrease by 2.7718% This figure was quite similar to the result provided by Chuc (2014) In conclusion, Phong and Thai said that the tax policy can satisfy only one out of three characteristics, which is economic characteristic
Therefore, they suggested that SSB should not be levied excise tax and government should follow revenue tax policy or amending corporate income tax (Phong & Thai,
2017) However, it is hard to conclude whether a tax policy is good or not because the AIDS only focuses on individual market but not the whole economy To assess the possibility of the imposition of excise tax, it is necessary to apply another approach, computable general equilibrium, for example.
Econometric model to estimate demand function
Estimating demand function had always been an attractive topic among economists because demand analysis was a comprehensive way to approach to consumer choice
The main objective of this approach was fundamentally to measuring pure numbers so-called elasticities, which were used to evaluate the reaction of consumers to a change in affecting factors like income or prices However, it had never been an easy work due to complicated technique and strict restrictions, including adding-up, restriction, homogeneity restriction and symmetry restriction Basically, there were two forms of a demand function, Marshallian demand function and Hicksian demand function In Marshallian demand function, a giving quantity (𝑞 𝑖 ) was a function of prices (𝑝) and total expenditure (𝑥) as equation 4, which meant that it reflected the relationship between consumed quantity and its price (Deaton & Muellbauer, 1980b):
Whereas, the Hisksian demand function was seemed quantity (𝑞 𝑖 ) as a function of utility (𝑢 𝑖 ) and price (𝑝) In which, utility was a function of prices (𝑝) and total expenditure (𝑥), so Hicksian demand function could be written as equation 5 (Deaton
& Muellbauer, Economics and consumer behavior, 1980b):
Despite of simple definition, to establish a demand function was a challenge to any researcher due to its restriction as named above Generally, the econometric studies of demand might be a single equation or a system of demand equations The most basic demand function was linear demand function which simply estimated the relationship between quantity and price and other independent variables However, it was obviously that this function was hard to satisfy the adding-up restriction
In 1954 Richard Stone firstly introduced his achievement in estimating demand function The function had the form as equation 6: log 𝑞 𝑖 = 𝛼 𝑖 + 𝑒 𝑖 log𝑥
In which P is the price index, calculated by equation 7 log 𝑃 = ∑ 𝑤 𝑘
It was easily seen that 𝑒 𝑖 was the total expenditure elasticity The compensated elasticity of item i in respect to item k was calculated as equation 8 (Stone, 1954):
Despite of satisfying some restriction, actual estimation results showed that there existed conflict in the relationship between different food items For example, food item A might be substitution of B, but B was complementary product of A (Deaton
& Muellbauer, Economics and consumer behavior, 1980b) Therefore, the most popular application of this system was so-called the Stone index, which was utilized to solve the problem of nonlinearity of inherited systems
The Rotterdam model was developed by Theil (1965) and Barten (1969), which used the similar approach as Stone but rather than using the function of logarithms, this model used differentials as equation 9 (Theil, 1965):
In which, 𝑤 𝑘 was the budget share of good k If we multiplied this function to 𝑤 𝑖 , it would become equation 10:
Regarding to restrictions, Rotterdam model could satisfy the restrictions under specific conditions In 1969’s research, Barten had tried to test the restrictions
Excepting adding-up restriction, he showed that there were conflicts between theory and reality in homogeneity and symmetry restrictions (Barten, 1969)
The original form of Working-Lesser model expressed budget share of a specific item by a linear function of the logarithm of total expenditure and price index of all products that were under consideration (Working, 1943; Leser, 1963) Despite of many different versions, they were all based on and developed from the most basic model, which was written as equation 14
However, the most functional form of this model was showed as equation 15
Whereas, 𝐻 𝑘 referred to household characteristics or demographic factors, which were used to evaluate the effects of these factors to real expenditure Using this model, it could be easy to measure cross-price elasticity and expenditure elasticity of each i item To estimate this model, ordinary least squares (OLS) was normally utilized
This model had become one of the basic foundations for other models and demand systems later However, because Working-Lesser model was a single equation model, it might not satisfy the restrictions of demand function if each item is estimated individually
2.6.4 The Almost Ideal Demand System (AIDS)
It could be said that AIDS was inherited from its predecessors as mentioned above
The system was firstly introduced by Deaton and Muellbauer in 1980 (Deaton &
Muellbauer, An Almost Ideal Demand System, 1980a) The cost function of AIDS 𝑐(𝑢, 𝑝), which defined the minimum expenditure level to get a fixed utility level at a given price, was as function 16 ln 𝑐(𝑢, 𝑝) = 𝛼 0 + ∑ 𝛼 𝑘 ln 𝑝 𝑘
Then, if we do a logarithmic differentiation of 16 and maximize the utility level of consumer, we can get the theoretical form of AIDS as equation 17, which showed the budget shares as a function of p and x
In which 𝑃 referred to a price index which is calculated by equation 18: ln 𝑃 = 𝛼 0 + ∑ 𝛼 𝑘 ln 𝑝 𝑘
The most important advantage of this system was its “flexibility” and its satisfaction of aggregation across consumers The AIDS was said to automatically meet with three restrictions of a demand function (Moschini, 1995; Vu, 2008):
• Adding-up restriction which meant that the total value of items should equal to the total expenditure In AIDS, the dependent variables were the budget share of each item, so the adding-up restriction should be as equation 19a, 19b, 19c
• Homogeneous restriction (equation 19) – the Hicksian demands are homogeneous to degree zero
• Slutsky symmetry restriction (equation 20), which refers to the symmetry in the cross-price derivatives of the demands
Due to this advantage, many researchers were still employing this demand system into their studies after decades However, there were existing concerns referring to the price index 𝑃 because of possibility of the non-linearity once using equation 18
Therefore, Deaton and Muellbauer suggest to us use the Stone index (Deaton &
Muellbauer, 1980b), which so-called LA/AIDS In reality, this system were more popular than its original one (Vu, 2008) Nevertheless, the Stone index was said to be invariant to the unit of measurement if it was changed, so it could not be called as
METHOD AND METHODOLOGY
Paradigm
Because of the advantages over other models, the AIDS were still applied popularly in many researches and this research was also not a bystander However, it is undeniable that the household characteristic will significantly effects on consumption behaviors and choices Therefore, this research would employ Ray’s method (1983) to give demographics into the system The fundamental concept of Ray was to convert household with different contexts into equivalent units, in term of some reference household, which was called equivalent scale This scale had an important meaning in welfare economics as well as public policy in terms of equity, justice and resource relocation (Ray, 1983) According to Ray’s method, the cost function of a household h at a given price level p and utility level u was proportional to the cost function of representative household 𝑐 𝑅 by a general equivalence scale 𝑚̅̅̅̅ as function …, in 0 which 𝑐 𝑅 shared the same function as function 16
𝑐 ℎ (𝑢, 𝑝, 𝑧) = 𝑚̅̅̅̅(𝑧)𝑐 0 𝑅 (𝑢, 𝑝) (22) This research used maximum-likelihood estimator with the equation 21 of the AIDS, which was incorporated with Ray’s method:
In which 𝑖 and 𝑗 run from 1 to k corresponding to k items that were taken into account
In this research, there were 8 items, including sugar (𝑖 = 𝑗 = 1), candy (𝑖 = 𝑗 = 2), fresh milk (𝑖 = 𝑗 = 3), wine (𝑖 = 𝑗 = 4), beer (𝑖 = 𝑗 = 5), bottle beverages (𝑖 = 𝑗 = 6), powered coffee (𝑖 = 𝑗 = 7) and tea (𝑖 = 𝑗 = 2)
The dependent variable (𝑤 𝑖 ) denoted the proportion of consumed value of item i th over all covered items The independent variable (𝑝 𝑖 ) denoted the average price of item i th that was consumed by the household And, the equivalent scale 𝑚̅ 0 (𝑧) was calculated as a function of household characteristics 𝑧 𝑥 (function 24) In this research, there were 10 household characteristics that would be mentioned in the next part
(24) And ln[𝑎(𝑝 𝑖 )] was a trans-log function as mentioned in equation 23: ln[𝑎(𝑝)] = 𝛼 0 + ∑ 𝛼 𝑖 ln 𝑝 𝑖
By estimating above system, this research would be able to measure approximately the compensated price elasticity, uncompensated price elasticity and expenditure elasticity for item i th
In order to estimate the AIDS, this research used the QUAIDS package, which was developed by Poi (2012) This package allowed user to estimate the basic AIDS developed by Deaton and Muellbauer (1980) and the quadratic AIDS model of Banks, Blundell and Lewbell (1997) In addition, user can add to the model several demographic variables to estimate In the post estimation stage, this package can establish a matrix of expenditure elasticity, uncompensated elasticity as well as compensated elasticity (Poi, 2012).
Data Collection
This research used the data collected by GSO every two-year, which is called Vietnam Household Living Standard Survey (VHLSS) The main utilized version is the one conducted in 2016 but other years’ surveys were also processed in order to show the trend of SSB consumption in recent years As the method of collection and procession was the same among years, this part only mentioned about VHLSS 2016
3.2.1 An introduction of Vietnam Household Living Standard Survey 2016
VHLSS was a nation-wide survey in Vietnam that was collected every two years by GSO, in order to inquire information about income, expenditure as well as other living conditions of Vietnamese household The most recent survey with available data was conducted in 2016, following Decision 1095/QD-TCTK on Conducting Household Living Standard Survey in 2016 The detail of VHLSS 2016 was summarized in table 3.1
Table 3.1 Information about Vietnam Household Living Standard Survey 2016
Survey object - Households and members of households
- Communes that had survey households Survey scope Across 63 provinces and cities
Time of survey The VHLSS 2016 was conducted within one month for an area
There were four periods of time: March, June, September and December
Survey period Thirty days or twelve months before survey Survey method Interview
Survey content To households: Collected information related to their living standard:
- Household income: income and income classified by source (from salary; agriculture, forestry and fishery industry; other production and service industry; other)
- Household expenditure: expenditure and expenditure classified by purpose and by type of expenditure (for meal, clothes, accommodation, commute, education, medicine, culture and other)
- Other characteristics of households and members of households: main demographic characteristics (age, gender, ethnic, marital status); educational level; disease status and medical service using; employment; electric, water and sanitary condition; voluntary and aid scheme participation
To commune: Collect information that affected to household living standard
- Overall demographic and ethnic condition
- Basic socio-economic infrastructure: system of electric, road, school, medical office, market, post office and water source
- Economic situation: agricultural production (land, main crops, production supporting conditions like irrigation and agricultural extension), non-agriculture jobs
- Other information related to social safety, environment, credit and savings
Note: Reprinted from Decision 1095/QD_TCTK on Conducting Household Living Standard 2016 by General Statistics Office (2015)
The VHLSS 2016 had been conducted widely to help authority understand deeply about living condition of their citizens There were 46.995 households being interviewed in 2016, in which 37.596 households being asked about income solely (income household - IH) and other 9.399 households being inquired on income and expenditure information (income and expenditure household – IEH) [General Statistics Office, 2018b] As a requirement of necessary variables, this research would utilize data of 9.399 IEHs The table 3.2 summarized information about the sample of VHLSS 2016
Table 3.2 The sample of VHLSS 2016
Number of households Total IH IEH
Note: Reprinted from Result of the Vietnam Household Living Standards Survey 2016 by General Statistics Office (2018b)
There are eight food items that were under consideration, including sugar, candy, fresh milk, wine, beer, soft drinks, powered coffee and dry tea This research focused on SSBs, so its main concern was soft drinks, which was defined as all bottled beverages in the market such as carbonated drinks, fruit juice, energy drinks and fresh water, excluding instant tea and coffee Unfortunately, this research could not extract fresh water from other sugary drinks
This research followed three-step procedure in processing data to estimate the consumption impacts of excise tax on SSBs Firstly, the necessary data would be extracted from VHLSS 2016 dataset There were two main groups of figures, the number and the amount of money that households spent on SSB and other household characteristics that might affect to their consumption Secondly, these variables would be given into AIDS in order to estimate the income, compensated and uncompensated price elasticity of SSBs Finally, the research would analyze the dataset and result of AIDS to give some policy implications
In order to estimate AIDS by using VHLSS 2016, eight food items were added into the model, including sugar, candy, fresh milk, wine, beer, bottled beverages, instant coffee and dried tea Regarding to these products, VHLSS 2016 only investigated the consumed amount and the consumed value of each household Except fresh milk, VHLSS asked household representative about how much they consumed in holiday, which was assumed to last for 15 days per year, and how much they consumed regularly in the last 30 days Therefore, for these items, the estimated consumed quantity of item i (𝑞 𝑖 ) and the estimated amount of money spending on item i (𝑣 𝑖 ) for one year were calculated as equation 26 and 27:
For fresh milk, because it was considered as regular food item, so VHLSS 2016 only asked about how much a household consumed this product in the last 30 days So, the estimated consumed quantity (𝑞 𝑖 ) and the estimated amount of money spending on fresh milk (𝑣 𝑖 ) for one year were calculated as equation 28 and 29:
For price of each item, VHLSS did not survey the actual price of each food item so in this research, the price of item i th (𝑝 𝑖 ) will be seemed as the average price (Equation
30) of that item in case of positive amount of consuming
However, because not all household consumed all item in selected basket, so in case of zero consumption, the price of item i th was the median of 𝑝 𝑖 by district If the median value of 𝑝 𝑖 by district were unable to be calculated, it was replaced by the median value of 𝑝 𝑖 by province The reason for using median value for 𝑝 𝑖 was because of exceptional high and low average value in the price range, which could be show later (Figure 4.1)
For the household characteristics, there were six household characteristics that were taken into account, including:
- The variable of “urban” was used to separate the living area of household, whether they are living in urban or rural area In case of urban, “urban” equaled to 1 and in the opposite case, “urban” equaled to 0
- The variable of “majority” was used to distinguish the ethnicity of household If they are Kinh, they will be majority people in the society and these households will have “majority” equal to 1 In the other cases, “majority” equals to 0
- The variable of “hhsize” measures the number of people in each household
- The variable of “exp_quan” were utilized to rank the expenditure quintile of households from 1 to 5, corresponding to the highest one to lowest one
- The variable of “nchild” indicated the number of children in each household
- Regarding to six geographical area of Vietnam, there were 5 variables, “reg6_1” to “reg6_5” The variable of “reg6_1” equaled to 1 if the household was living in Red River Delta and equaled to 0 in other cases The variable of “reg6_2” equaled to 1 if the household was living in Midlands and Northern Mountains area and equaled to 0 in other cases The variable of “reg6_3” equaled to 1 if household was living in North Central and Central Coast and equaled to 0 in other cases The variable of “reg6_4” equaled to 1 if the household was living in Central Highlands and equaled to 0 in other cases The variable of “reg6_5” equaled to 1 if the household was living in South East and equaled to 0 in other cases
The data processing method was summarized by Annex 2.
Data Analysis
3.3.1 Overview of SSB consumption and SSB consumer
Because VHLSS collected data from selected citizens in nation-wide, utilizing the data in VHLSS 2010 – 2016 could help us to see the trend in consuming a specific product and also SSB in particular
Here was some information that could be extracted from the database:
- Price of SSB: The average price of one liter of SSB, the price range of SSB that consumers spent on, the price level at which majority of consumer consumed
- The trend in consuming SSB from 2010 – 2016
- The characteristics of SSB consuming households: household structure, urban or rural area and so on
By analyzing these features, this research aimed to provide an overview over SSB consumption in Vietnam Through this step, we could also predict which factors were affecting to this market and who were affected most by the increasing price created by new tax policy
3.3.2 Expenditure, compensated and uncompensated elasticity
After estimating the AIDS, the elasticities of each item would be calculated by using equation 29, 30 and 31 (Poi, 2012) The first elasticity showed that if the total expenditure of a household increased by 1%, price of good i would increase by 𝜇 𝑖 %
Therefore, the expenditure elasticity for good i was:
𝑤 𝑖 (𝛽 𝑖 + 𝜂 ′ 𝑧) (31) The item will be so-called normal goods if the expenditure elasticity is positive, which means that the expenditure for good i will increase when its price increases Whereas, inferior goods refer to the case that if the expenditure elasticity is negative, the expenditure for good i will decrease when its price increases
To calculate own-price elasticities and cross-price elasticities, the research utilized both Marshallian and Hichsian price elasticities The Marshallian (uncompensated) price elasticity for good i in respect to price of good j was:
Where 𝛿 𝑖𝑗 is the Kronecker delta (𝛿 𝑖𝑗 = 1 for 𝑖 = 𝑗 and 𝛿 𝑖𝑗 = 0 for 𝑖 ≠ 𝑗) (Green &
Alston, 1990) The uncompensated elasticity showed how demand would change once the price changes by 1% with the assumption of unchanged income It solves the problem of maximize utility of consumer, with subjecting to a specific amount of expenditure level
Approaching from another aspect, the Hicksian demand solved the problem of cost minimization, with subjecting to a specific level of utility The Hicksian (compensated) elasticity was calculated as function … It said that if the price increased by 1%, the demand on that item would change at 𝜖 𝑖𝑗 𝐶 %
Despite of approaching from different aspects, both approaches were said to be interchangeable (Deaton & Muellbauer, Economics and consumer behavior, 1980b)
By estimating this number, we could answer the question of how much consumption demand would change when imposing tax on SSBs This research would use these equations to calculate the elasticity at means value
3.3.3 The differences in elasticity between different household patterns
In order to compare the impacts of new tax policy on different household patterns, this research would employ AIDS model to each group of households to estimate elasticity for each group There were five criteria that were taken into consideration, including urban or rural area, majority or minority ethnicity, the number of children in the household, the quintile of household, the time of consuming SSB – regularly consuming, holiday consuming or both periods of time
The method of estimating was similar to the previous part However, for the purpose of comparison, this research only employed the basic AIDS in this part, which mean that there was no household characteristic be added into the system
After estimating the elasticities of different household groups, the research would measure the welfare effects of the new tax policy based on the calculated elasticities
In reality, almost intervention of government will lead to a change in welfare, but this change is hard to measure The changing in welfare before and after imposing tax could be defined by compensated variation (CV) and equivalent variation (EV) Both terms referred to a money metric and firstly named by Hicks (1942)
CV estimated the changes in welfare when supposing that the initial utility level was fixed but the price was shifted Whereas, EV was assumed that the price changes while the utility level of consumers was equal to the level after changing the price (Hicks, 1942) Theoretically, the function of CV and EV when a single price be changed was calculated by using equation 32 and 33
In which, 𝑢 0 and 𝑢 1 were the utility level of consumer before and after changing the price; 𝑝 0 and 𝑝 1 were the price level of considered item before and after changing (Araar & Verme, 2016) However, most of the tax pre-imposition utilized CV to estimate welfare effects and this research also applied this approach method to estimate the welfare effect of the tax policy In addition, conceptually, CV was said to be rationale to apply into measuring the change in utility when it had not been occurred, so-called ex-ante (McIntosh, Clarke, Frew, & Louviere, 2012) like SSB excise tax in Vietnam
Following Friedman and Levinsohn (2002), Robles and Maximo (2010), Yu (2014), the simplification of CV can be calculated by using the second order of Taylor approximation If then we deflated by 𝑥 0 , representing the initial consumption value of food item, it can be expressed by the equation 34 (Araar & Verme, 2016):
RESULTS
Sugar-sweetened beverages consumption in Vietnam
Recent years, it is obvious that the living condition of Vietnamese has gradually improved As a result, the demand on necessary and unnecessary items have also increased In the past, SSB could be seemed as a luxury beverage but nowadays, it has become popular among citizens and can be purchased everywhere, from a roadside water stall to a big shopping mall with an affordable price It was calculated from VHLSS 2016 dataset that the mean price of SSB that were consumed by household was 19,606.55 dong per liter And 83.8% of household in VHLSS that consumed SSB in 2016, had consumed this kind of product with the average price between 5,000 dongs to 40,000 dongs per liter The figure 4.1 shows the price distribution of SSB that were consumed by households in VHLSS 2016, which pointed out that the average price allocated most was 20.000 dong per liter
Figure 4.1 The price distribution of SSB consumed by households in VHLSS 2016
A survey that is conducted every two-year like VHLSS is a good way to observe consumption trend of citizens in general because it covers all households nation-wide
Average price of bottled beverages with different social contexts The figure 4.2 shows the changing in consumption habits of households from 2008 to 2016 through VHLSS
Figure 4.2 SSB consumption in Vietnam 2008 – 2016 through VHLSS
As can be seen from the figure 4.2, the percentage of SSB consumer surveyed by VHLSS had increased gradually year by year Until 2016, nearly 70% of the sample said that they had consumed SSB However, looking at the graph, it is easy to realize that most of them consumed this item in special occasions like Tet holiday That number in daily life was quite low, just equaled to nearly half of above occasions
Nevertheless, it cannot deny that all figures were increasing.
AIDS results
In order to establish a demand system with eight F&B items taken into account, comprising sugar, candy, fresh milk, wine, beer, soft drinks, powered coffee and dried tea and 10 household characteristics, including living area, ethnicity, household size, quintile of expenditure, the number of children and five dummy variables for regions, and, the research employed STATA to estimate AIDS The system was run for a sample of 9,382 observations, after eliminating some households with missing data
Consumed SSBConsumed SSB during holidays in the last 12 monthsConsumed SSB in the last 30 days
Table 4.1 showed the estimated expenditure, uncompensated, compensated own- price elasticities and cross price elasticity for those all above items
Marshallian cross price elasticity of SSB with respect to price of good j
The result showed that the expenditure elasticity of all food items here is positive, which means that if total expenditure increases by 1%, the expenditure for all items will follow up, which is quite suitable to consuming theory In particular, the expenditure elasticity of SSB was approximately 0.9577 which means that if the total expenditure of a household increases by 1%, the budget for SSB will increase by 0.9577% This rate is quite high in comparison to a necessary commodity like sugar (0.314), another sugar-containing product – candy (0.7212) and wine (0.9376), but lower than other beverage products like dried tea (1.0310), powered coffee (1.2779), beer (1.3425) and fresh milk (1.6250)
The Hicksian own-price elasticity of all products was negative, which means that when the price of any item increases, the expenditure for it will decline, but the level of decreasing is different In which, SSB’s absolute value of Hicksian own-price elasticity (1.1399) is the highest in comparison to the others and is the only one higher than 1 All Marshallian own-price elasticities were negative, but the absolute value was varied among items There were three items with Marshallian own-price elasticities bigger than 1, including fresh milk (1.0429), beer (1.0688) and SSB (1.2217), which means that these products were elastic to price Whereas, other items were inelastic because their absolute values were lower than1 Among eight items, SSB had the highest level of Marshallian own-price elasticity The result pointed out that if the price of SSB increased by 1%, the consuming amount of each household would decrease by more than 1% at 1.2217% Supposing that the new tax policy was implemented with tax rate 10%, the household would cut down their consumed SSB by 12.217% It showed that the new tax policy may be effective in term of declining the level of SSB consuming
However, as can be seen from cross price elasticity of SSB with respect to price of other items, all of them were positive, which means that they are all substitute goods of SSB An 1% increasing in price of SSB may lead to a decrease in consumption of other sugar relating item like sugar (0.0609%) and candy (0.0194%), which meant that these products are complementary food to SSB In contrast, the consuming number of other beverages will also be pushed up at 0.0859% for fresh milk, 0.0381% for wine, 0.0813% for dried tea, 0.1170% for beer and 0.0218% for powered coffee
In another word, the budget for all items can be re-distributed to several items once the new tax policy is imposed Therefore, if Vietnam government decided to implement the excise tax policy on SSB, the SSB consumer will increase their expenditure for other beverage items, even including unhealthy beverages like wine and beer.
The impacts of household characteristics on SSB consumption
The reaction of households to the changing in price will be diverse due to the differences in their characteristics In this part, AIDS will be employed on distinguished group of households for measuring the consequences of new tax policy on each of them There were six groups under consideration, including urban/rural are, major or minor ethnicity, the number of children, the quintile, the region and time of consuming
There is a slight difference between the elasticities of SSB consumer in rural and urban area Relating to the percentage of SSB consumer, this ratio in urban area (80.10%) is higher than that in rural area (65.49%), which means that citizens living in urban area are more likely to consume SSB than another one
Added to that, if there were a shock in the total expenditure of households, the one who living in rural area would react stronger because of higher expenditure elasticity (1.03 in comparison to 0.84) Regarding to uncompensated and compensated elasticity, both groups of rural and urban have negative value, which is explainable by the increasing price, but the absolute values of rural area are lower than urban area
Assumed that the price of SSB increase by 10% because of new tax policy, the household living in urban area would decline their consumed amount by 13% in comparison to the ratio of 12.1% of rural area In the context of higher SSB consumer percentage and higher ratio of people who are suffering from O&O in urban area, this result said that the tax policy seems to be effective in achieving its objective, which is said to solve the problem of increasing in the suffering of O&O
Figure 4.3 SSB’s expenditure, compensated and uncompensated elasticity be separated by urban and rural area
The research tried to figure out whether ethnic of a household affects to its SSB choice and the outcome of AIDS said that there is existing the relationship between ethnic and SSB consuming behavior
As can be seen from figure 4.4, it is obvious that the percentage of SSB consumer with major ethnic (72.43%) is higher than minor one (57.64%) Looking at uncompensated elasticity of both groups, the figure shows that the majority will response to new tax policy in a stronger way due to its higher absolute value (1.26 in comparison to 1.11) However, similar to the case of urban and rural are, the income effect in the minority group is more significant than the other one, whereas, the uncompensated elasticity of majority is higher than minority It is because people with minor ethnic is more sensitive to income than the major, because most of them are living in a tougher environment than the another, for example, mountainous area
Expenditure elasticity Compensated elasticityUncompensated elasticity Percentage of SSB consumer
Figure 4.4 SSB’s expenditure, uncompensated and compensated elasticity separated by major or minor ethnicity
The highest number of children in a household that VHLSS 2016 recorded was 7 children However, due to the condition of the sample, all households with more than
4 children will be aggregated in a group The research tried to examine whether the number of children in the household is affecting on SSB consuming situation in each family
The resulted show that there may exist the relationship between the number of children in the household and the percentage of SSB consumer in each group The biggest proportion of SSB consumers is the household that has only one child (76.14%) And then, the proportion gradually decrease when the number of children in the household increase The proportion of SSB consumer decrease significantly when the household has the fourth children, just 57.80% in comparison to 71.98% of the household that has three children Then, if the number increases, the percentage of SSB consuming households will decline further, to 52.08% of households To the households that do not have children, the percentage of SSB consuming household is
Expenditure Elasticity Compensated elasticityUncompensated elasticity Percentage of SSB consumer
62.55%, lower than the one with 3 children but higher than the one with more than 3 children
Figure 4.5 The SSB’s expenditure, uncompensated and compensated elasticity be separated by the number of children in the household
Looking at the elasticity data, it is easy to realize that if government decided to impose excise tax on SSB, the household with more than 4 children would react strongest to the policy because of the highest uncompensated elasticity (1.38) The household with no children also decreases significantly their consumed SSB amount (1.32) The uncompensated elasticities of other households with 1 to 4 children are quite similar and fluctuated from 1.19 to 1.22 However, if we look at the expenditure elasticity of these households group, it could be noticed that the group with no children is affected most by income effect, which means that if the total expenditure of household increase by 1%, the expenditure for SSB will rise by 1.07% , whereas, the other groups only increase their budget for SSB by lower than 1%
The result has showed a clear connection between two factors, the number of children in the household and the percentage of SSB consuming household The percentage of household spend on SSB will increase once they have their first children It can be explained by the psychology of adults who are promoted to be parents or grandparents
Expenditure elasticity Compensated elasticityUncompensated elasticity Percentage of SSB consumer for the first time Added to that, when giving birth to the first child, the budget of family has not been limited possibly Then, maybe because of budget constraint, with higher number of children, households are pushed to reduce the budget for outer beverages like SSB, especially when they have more than 3 children In addition, with higher number of children, households seem to response to the tax policy stronger
Income is always a factor affecting to consuming choices of any household However, income is quite hard to measure exactly, especially for household that earned money form varied sources or for informal labors that have unstable income Therefore, in this research, total expenditure was utilized instead of total income
Figure 4.6 The SSB’s expenditure, uncompensated and compensated elasticity be separated by the quintile of household
There are 5 expenditure quintiles, corresponding to 5 levels of income, from lowest level (quintile 1) to highest level (quintile 5)
As can be seen from figure 4.6, the percentage of SSB consumer in each expenditure quintile gradually increased from the lowest level of expenses (53.24%) to the highest level of expenses (81.22%) In contrast, the absolute value of elasticities declined
Expenditure elasticity Compensated elasticityUncompensated elasticity Percentage of SSB consumer from the low to the high The result showed that all household will refrain their budget for SSB if the new tax policy is imposed, and the household in the lowest quintile will be affected most by this decision
It is undeniable that consuming behaviors in different geographical regions because of differences in culture of climate features
Figure 4.7 The SSB’s expenditure, uncompensated and compensated elasticity be separated by six regions in Vietnam
In Vietnam, it can be seen from the figure 4.7 that the percentage of SSB consumer in each region varies from North to South, in which region in the North, Midlands and Northern Mountains, have the lowest proportion (56.44%) Then, the ratio increases from North to South The region that has the highest proportion is South East (85.38%) It is easy to explain by the differences in nature conditions In the North, there are 4 seasons, spring, summer, autumn and winter, whereas the South is said to be hot throughout the year, which pushes consumers to spend more on beverages Added to that, Midlands and Northern Mountains is a mountainous area with relatively cool weather, but also the poorest region, with 13.8% households be
Red River Delta Midlands and
North Central and Central Coast
Expenditure elasticity Compensated elasticityUncompensated elasticity Percentage of SSB consumer rated poor (General Statistics Office, 2018)– the highest rate among six regions in Vietnam Therefore, they may not be able to spend money on leisure commodity like soft drinks In contrast, South East region has the lowest rate of poor household (0.6%) (General Statistics Office, 2018) and the weather here is quite hot However, Central Highlands, the second poorest region in Vietnam, also contributes a high percentage of SSB consumer (79.42%), rank second among six regions
Welfare effects
After estimating the compensated elasticity, the research tried to measure the welfare effects of the new tax policy by calculating compensating variation (CV) This number represents for the changes in welfare in money metric when price is changed but keep the initial utility level By estimating CV, the research can answer the question of how much consumer will lose or gain if the tax policy is implemented
This research supposed that the new tax policy applying on SSB at 10% will lead to an increasing by 10% in SSB price In that case, on average, the CV is as table 4.2
Table 4.2 Compensating Variation by categories if applying 10% excise tax on SSB
Midlands and Northern Mountains -20.468 North Central and Central Coast -27.064
The table 4.2 showed that CV for all sample and CV for each category was negative, which means that on welfare aspect, the new tax policy has bad effect on consumer
On average, the CV of consumer will be decline by 27.84 thousand dongs
However, the positive effect of this tax policy is that, the level of decreasing welfare of is higher in urban area (-43.19 thousand dongs) and majority ethnicity (-29.67 thousand dongs) in comparison to rural area (-21.24 thousand dongs) and minority ethnicity (-19.05 thousand dongs), respectively In addition, the lower the quintile is, the lower welfare is lost Whereas a household in the lowest quintile may lose 9.23 thousand dongs, the highest level one is possibly deprived of -53.81 thousand dongs
The result pointed out that the excise tax policy on SSB is not a regressive but can ensure the equality of different household groups
Nevertheless, considering the welfare of households with different number of children, the household with 2 children will lose the biggest welfare (36.63 thousand dongs), followed by the household with one (29.61 thousand dongs), four (29.14 thousand dongs) and three (28.23 thousand dongs) children
Regarding to the welfare in six regions, there is no surprising that the household living in South East region and Central Highlands will lose the biggest welfare, 60.48 thousand dongs and 46.70 thousand dongs respectively because of high percentage SSB consumer However, the households in Midlands and Northern Mountains are not the group that will lose lowest welfare, but it is the households in Mekong Delta River, despite of big proportion of SSB consumer there
In short, losing welfare is inevitable when implementing any policy instrument With the new tax proposal, welfare of the whole society will be lost, but it may also be a reason for them to decrease their consumed amount.
Discussion
Taxing SSB is now becoming popular around the world because more and more governments are afraid of the effects of obesity on their socio-economy Although being considered as a country that has a moderate weight (BMI