Problem
Sugary drinks are the single largest source of added sugar in the average American's diet. Obesity costs the United States an estimated $147 billion a year in medical bills. So when cities started taxing sweetened beverages, the argument seemed simple: charge more, people drink less, everyone gets healthier.
Science
We tracked prices and sales across 357 stores in Philadelphia and 870 stores in the surrounding area, covering more than 860 taxed and untaxed beverage products from January 2015 to September 2018. Using data from IRI, a large market research firm, we covered everything from grocery stores and wholesale clubs to drugstores and convenience stores. We measured what happened to prices, sales and nutritional content after the tax came into force, comparing Philadelphia stores with nearby stores outside the city that were not subject to the tax.
Outcome
The tax was passed on to shoppers almost in full and prices rose by 34% on average. Sales of taxed drinks inside Philadelphia fell by 46%. But more than half of that fall was cancelled out by shoppers driving to stores just outside the city to buy the same drinks without the tax. Once that cross-border shopping is counted, the net reduction in sales was only 22%. Low-income households reduced their purchases less than high-income households because they were less likely to own a car or commute outside the city and so could not easily shop elsewhere. Philadelphia collected $79 million in tax revenue, falling short of the $92 million it had projected.
Change
We now know that a city-level sweetened beverage tax is not the win-win its supporters claim. If shoppers keep buying, the city earns revenue. If they stop buying, they get health benefits. But we saw a third outcome: shoppers drive to the next town, and the city gets less of both. Our research calls on policymakers to treat geographic coverage as a central design decision. A tax applied at state or national level would make cross-border shopping far harder and would raise more revenue while reducing consumption. For retailers the findings show that stores just outside a taxed city can expect a large surge in demand and should plan their stock accordingly.
The research was recognised in 2026 with the Weitz-Winer-O'Dell Award, given each year to the Journal of Marketing Research article judged to have made the most lasting contribution to marketing theory and practice.
Stephan Seiler, ³Ô¹ÏºÚÁÏ Business School; Anna Tuchman, Northwestern University; Song Yao, Washington University in St. Louis. Published in the Journal of Marketing Research, 2021.