Junk Food, Physical Activity, and Obesity:

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Junk Food, Physical Activity, and Obesity The
Effect of the Fat Tax and the Thin Subsidy by
Odelia Rosin, Yossef Tobol, Gideon Yaniv
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Obesity is a major health and economic problem
(especially in the US and UK)

• About 66 of adults in the US are either
  overweight or obese
• Between 1980 and 2004, obesity in the US more
  than doubled,
• from 15 to 32
• In 2001, the economic cost of obesity in the US
  amounted to
• 117 billion, including
• Cost of surgery and treatment of complications
  of chronic
• diseases associated with obesity (hypertension,
  heart disease,
• type 2 diabetes)
• Productivity loss due to morbidity and mortality
• Expenditures on appetite-reducing drugs
• Cost of weight loss programs

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Economic Incentives to Combat Obesity

• Aim at affecting consumer behavior through
  changing the
• relative price of junk and healthy foods
• A well-known proposal
• Impose a fat tax on junk foods
• Use the tax revenue to finance a thin
  subsidy to healthy
• foods
• _________________________________________
• Recently supported by the World Health
  Organization

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Economic Literature
The economic literature on rational
high-calorie consumption and obesity is still in
its infancy Most of the economic literature
on obesity is empirical, inquiring into the
causes of the observed rise in obesity over
time Only a few papers address the
individuals decision to consume high-calorie
foods while rationally taking into account the
adverse effects on his/her health and life
expectancy

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Purpose of research
Examine the effectiveness of the fat tax and thin
subsidy in reducing obesity within a food-intake
and physical- activity rational-choice model
Challenging hypothesis While the proposal is
likely to reduce junk food consumption, it might
act to reduce physical activity. Consequently,
obesity might even increase!
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The setting

• An individual consumes junk food meals and
  healthy meals
• Junk food meals are purchased from a
  restaurant.
• Healthy meals are cooked at home with inputs of
  health
• ingredients and time.
• Income is spent on the purchase of junk food
  meals and
• health ingredients
• Time is spent on cooking, physical activity,
  and leisure
• (working time is institutionally fixed)

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Variables (to be
chosen by the individual)
F junk food meals H healthy meals G
cooking ingredients k cooking time x
physical activity time l leisure time
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Constraints
? Budget constraint
pF F pGG M where M
income PF price of junk
food PG price of
healthy food ? Time constraint
k x l 24

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Functions

• Production function H Min(G/? , k/?)
• where ?, ? technology coefficients
• Consumption function C F ?H
• where ? taste coefficient
• Obesity function S ?F ?x
• where ?, ? calorie intake and outtake
  coefficients
• Utility function U U(C, l)

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The individuals choice
Assumption The individual seeks to
maximize his/her net utility
Max NU U(C, l) S
subject to his/her production and consumption
functions Procedure Substitute the
production and consumption function into
the net utility function Formulate net
utility in terms of F and x Differentiate
net utilty with respest to F and x
(first-order conditions) Totally
differentiate the first-order condition
with respect to pF and pG
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• Three types of individuals

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Weight unconscious

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Weight conscious but physically inactive
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Weight conscious and physically active
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Conclusions
The effects on obesity of the fat tax and the
thin subsidy