Special excise tax on food and beverages and its impact on inflation in Mexico in terms of dynamics, persistence, and change of regime

Abstract

Objective. The objective of this research is to study the strength of transfer, the transitions, and the persistence of the special excise tax on products and services (known by its Spanish acronym, IEPS) applicable since January 2014 to high-energy foods and soft drinks, and the effect of the tax on the annual inflation rates for these foods and beverages. Methods. Annual inflation rates for each food and beverage were calculated from January 2010 to December 2016, based on monthly data from the national consumer price index. A model of variable regimes was used to estimate the impact of the tax on the inflationary dynamics of the foods and beverages, as well as its transitions, persistence, and the possible ruptures. Results. There was high variance in the inflationary dynamics of the high-calorie foods and soft drinks subject to the tax. The tax contributed gradually to price inflation for some high-calorie products, before returning to pre-tax inflation levels. The continuity of the tax did not affect the inflationary dynamics of the food after 2015. Conclusions. The tax should be accompanied by measures that facilitate its persistence and transfer to the inflationary dynamics of the taxed products. The taxes collected should be used to promote and facilitate the consumption of healthy alternatives, and this should be accompanied by educational measures aimed at continuing to change consumption habits in the medium and long term.