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Consumer behaviour and indirect taxation

Understanding the behaviour of consumers is of central importance for assessing the impacts of a whole host of public policies. For instance, the impact of policies that change prices, such as indirect taxes, or that restrict advertising will depend crucially on how people change what products they consume in response.

IFS research has made fundamental contributions to our understanding of consumer behaviour. This includes work that focuses on how households allocate their income across broad goods – foods, alcohol, clothing and so on – and how these decisions are influenced by changes in people’s level of income or changes in prices through, for instance, tax changes. A challenge in empirically capturing people’s choice behaviour is to avoid placing modelling restrictions that can prejudice results. An important theme of IFS work has been to develop non-parametric revealed preference methods that side-step the need for such restrictions. IFS is also well known for making important contributions to measuring and modelling consumption over the lifecycle.

A central focus of our current research agenda is to understand choice behaviour in the food and alcohol market, which is key to assessing public policy aimed at combating high rates of obesity and diet related disease. Our work in this area seeks to improve the evidence base on how people make decisions over which products to choose and how these decisions interact with choices over pricing and advertising made by food manufacturers and retailers. Recent work explores the effectiveness of taxes levied on foods to improve nutrition, the efficacy of restricting advertising of junk foods and the extent to which there is evidence of self-control problems in individuals’ food purchases.

Our rigorous but policy relevant research enables us to engage with, and have important impacts on, public policy debates. Recent examples include discussions around the design of alcohol taxes, the soft drinks industry levy and how benefits should be increased to reflect rises in the cost of living.

Highlights

Journal article | Review of Economic Studies
There are growing calls to restrict advertising of junk foods. Whether such a move will improve diet quality will depend on how advertising shifts consumer demands and how firms respond. We study an important and typical junk food market – the potato chips market.
Journal article | American Economic Review
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Contacts

Contact IFS on 020 7291 4800 or mailbox@ifs.org.uk

Peter Levell
Senior Research Economist
Martin O'Connell
Associate Director
Kate Smith
Senior Research Economist
Rebekah Stroud
Research Economist