Denmark's "Fat Tax" and Unintended Consequences

Denmark's "fat tax" went into effect on Saturday. Denmark is apparently the only country with such a tax. Via The LA Times.

The tax rate is 16 Danish kroner per kilogram of saturated fat in a food – in terms Americans can understand, that’s about $6.27 per pound of saturated fat – and it kicks in when the saturated fat content of a food item exceeds 2.3%.

[...] the tax adds 12 cents to a bag of chips, 39 cents to a small package of butter and 40 cents to the price of a hamburger.

Here is why the tax has been enacted.

[...] Denmark lags in terms of life expectancy, and the country hopes the measure will increase the average lifespan by three years over the next decade.

 A respectable goal. Will the tax work? Via BBC News:

Some consumers began hoarding to beat the price rise, while some producers call the tax a bureaucratic nightmare. Others suggest that many Danes will simply start shopping abroad.

These possibilities make clear the unintended consequences of  policy. Will the "fat tax" impact public health and increase lifespans, or will it simply alter when and where consumers buy their fatty goods. Local entrepreneurs could capitalize on a this newly created opportunity to providing fatty goods at a slightly lower cost on the black market. German "fat shops" could pop up right across the border, selling candy, dairy, and snack foods at lower prices than what a Danish consumer could get in Denmark. There are also other reasonable scenarios where Danes could get around the tax. Consumers could shift their consumption to other unhealthy foods that have low fat, but high refined sugar and sodium content. Producers could innovate around the tax by manipulating fat contents by included other potentially harmful ingredients.

In addition to the potential unintended consequences, there will be significant costs associated with enforcement, data collection, processing, etc. The tax is relatively complicated which means even higher costs to the system. Via the Washington Post:

Linnet Juul says the tax mechanism is very complex, involving tax rates on the percentage of fat used in making a product rather than the percentage that is in the end-product.

As such, only the arrangements of how companies should handle the tax payments could cost Danish businesses about $28 million in the first year, he said.

This number is obviously just an estimate, but the fat tax is going to be difficult to implement successfully and could cost businesses a substantial amount of money in terms of revenue and administrative costs (not to mention the cost to the government... although admittedly they could make a killing).

Regardless of the associated costs of the fat tax, Danish lawmakers believe this is essential, and they passed the law with relative ease. The big question is will the fat tax do what it is designed to do, increase the average Danish lifespan and help the Danes catch up with the OECD average? This has yet to be seen, but I am doubtful.

Here is the NPR story where I originally heard about the Danish fat tax.