Measuring Consumer Responses to a Bottled Water Tax Policy

Using panel data of retail purchases, we measure the effects of the introduction, and later removal, of a bottled-water tax in the state of Washington. We use a difference-in-differences approach to measure effects of the tax against untreated stores (in comparable control states) and untreated weeks (the pre-period). We further estimate triple-difference specifications comparing bottled water to juice and milk substitute products. Our results show that, when imposed, the tax causes bottled water sales to drop by nearly 6% in our preferred specification. Sales never fully recover, even after the tax removal. In terms of the heterogeneity of this effect, we find larger quantity drops in high tax rate areas and in the lowest and highest quintile income areas.