Non-paternalistic foundation of sugar taxation and missing markets for sugar content

This paper provides a new foundation of soft drink taxation. We abstract from externalities and internalities previously used to justify such taxation and, instead, emphasize that neither explicit nor implicit markets and prices for sugar content can be expected to emerge. Hence, in the absence of any regulation, the sugar content of sugar-sweetened beverages (SSBs) would be inefficiently high. This market failure can be corrected by a tax on the sugar content per unit of the SSB. However, a sugar content tax alone leads to an unintended downward distortion of the quantity of SSBs, which has to be corrected by an additional revenue-neutral subsidy on each unit of the SSB.