Taxation or Subsidies for healhy food

Government intervention in the citizens’ preferences is sometimes seen as necessary for the overall welfare of the population. In this case, the issue assumes already that the government should intervene in citizens’ food choices. The question is whether to tax unhealthy food or subsidize healthy food instead. Since we are talking of an efficiency problem, we can look at the overall effect of these two tools in the market. The outcome is equivalent, however, the transmission mechanism changes from one tool to the other. Subsidies are common tools for the government. A subsidy is financed through taxation and it allocates funds for some activities that respect an identification process that the subsidy law specifies beforehand. The problem with subsidies is the same in every sector that are applied, for example in environmental technologies, a subsidy creates a status quo group that is defined by the politicians as the target set that needs to be helped to produce a the desired product. There are two problems with this consequence. The first is that there could appear new type of food that could be healthy as much as the subsidized ones, but they could be damaged by the existing groups that receive funds from the government. Thus, subsidies could damage a new technology that is suitable as the existing ones. Another problem of the subsidies is that is easier for the politicians to get captured by interest groups and lobbyists. Is not a case that the so called “pork barrel” is usually carried out with subsidies, rather than tax exemptions. And here we come to the second tool, increased tax rates on specific products. This tool has the same problem as the first one, but the issues are less serious and narrower. As a matter of fact, taxing existing damaging foods does not create a problem for new typologies of foods that are healthier as the existing ones. New typologies of damaging goods might be developed by the industry to circumvent legislation, but it is rare since it is easier to identify a new product to tax, rather than find new government funds to subsidize a new healthy product. Regarding political capture of interests group, it is easier to sneak a subsidy for a particular group, rather than create tax loopholes that are not justified by a general principle. In conclusion, the government must try to reduce unhealthy behaviour because government funds are used for healthcare, thus it is a question of fiscal responsibility to reduce the number of citizens that could require healthcare services. This objective can be reached with two tools, and we have seen why taxation is the most adequate, not because subsidies are damaging, but rather because taxation reaches the same outcome in a way that is more efficient.