The Economic Effects of Diabetes and Sugar-Sweetened Beverage Taxes

Abstract

The aim of this study is to analyse the effects of diabetes and sugar-sweetened beverages on the South African economy. The study was motivated by the prevalence of diabetes in South Africa and the cost of managing diabetes. In 2016, diabetes was the second leading cause of mortality in the country. Current studies show that more than 7% of healthcare expenditure is spent on diabetes care. Sugar-sweetened beverages have been linked to the increase in the prevalence of diabetes.

Three independent studies are conducted to investigate the link between diabetes, sugar-sweetened beverages (SSB) and the economy. Firstly, we study the impact of diabetes on labour market outcomes in South Africa using regression analysis. We achieve this through using probit models, propensity score matching and linear instrumental variable methods to account for endogeneity of diabetes. We find through the analysis that individuals with diabetes are less likely to be employed when compared to individuals without diabetes. Secondly, we investigate the economy-wide impact of diabetes using a computable general equilibrium model. We assessed the impact of diabetes on GDP, household welfare and sectoral outputs. We find that diabetes reduces sectoral outputs, household consumption as well as GDP. Thirdly, we investigate the effects of sugar-sweetened beverages tax on the economy. We analyse this by simulating the effects of the tax together and the envisaged health benefits from the tax. The results of the analysis show that in the short-run poor households are negatively affected. The negative effect is however reversed in the long-run when the net health benefits of the SSB tax are considered.

Overall, the main finding of this research is that diabetes has a negative effect on the South African economy. This negative effect can however be offset by targeted tax policy interventions.