An Analysis of the Special Tax's Impact on Soft Drinks and Non-Alcoholic Beverages Sector

Abstract

We analyze the short- and long- run impacts of the special tax upon Mexico’s soft drinks and non-alcoholic beverages sector. The soft drink sector is a highly concentrated market (oligopolistic) where some firms participate in more than one market´s segment. Using time series techniques, our results indicate that the sector presents a trend performance that has not been affected by the tax. However, we found some evidence that there was some short-term negative impact. We argue that price flexibility allowed oligopolistic firms to reduce the tax’s negative effects on production. We complement the macro analysis with a study of the family’s food expenditure composition and of price and income elasticities. Our results indicate that the percentage of beverage expenditure did not suffer major change.