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Price elasticities of major food categories to inform fiscal reform in Costa Rica

Year of publication 2023

Place of publication Rome, Italy ;

Pages 2p.

Author FAO

Publisher FAO ;

Product type Policy brief

Series title FAO Agricultural Development Economics Policy Brief

Series number No. 65

To cite or share https://doi.org/10.4060/cc6751en

Synopsis (short abstract) In the context of fiscal reform in Costa Rica (value added tax revision), the definition of a new basic tax basket – canasta básica tributaria (CBT), incorporating nutritional criteria – is underway in the country. Measuring price elasticities is essential because it allows: knowing the extent to which food demand reacts to price changes, anticipating changes in the quantities demanded as a result of fiscal policy changes, measuring potential substitution and complementary effects between food groups, and potential nutritional effects of fiscal policies. As a result, it helps to provide recommendations on the content of a CBT with nutritional criteria.

The findings of this brief have been adapted from the FAO Agricultural Development Economics Working Paper 23-04 Fiscal reform in Costa Rica – Price elasticities of major food categories to inform decision-making.

Cite this content as:

FAO. 2023. Price elasticities of major food categories to inform fiscal reform in Costa Rica. FAO Agricultural Development Economics Policy Brief, No. 65. Rome.

https://doi.org/10.4060/cc6751en

Language English

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    Fiscal reform in Costa Rica
    Price elasticities of major food categories to inform decision-making
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    In the context of fiscal reform in Costa Rica (value added tax revision), the definition of a new basic tax basket – canasta básica tributaria (CBT), incorporating nutritional criteria is underway in the country. In this study, price elasticities of major food categories were analysed using a Quadratic Almost Ideal Demand System (QUAIDS) model and data from the 2018 National Survey of Household Income and Expenditures – Encuesta Nacional de Ingresos y Gastos de los Hogares (ENIGH). Measuring price elasticities is essential because it allows: knowing the extent to which food demand reacts to price changes, anticipating changes in the quantities demanded as a result of fiscal policy changes, measuring potential substitution and complementary effects between food groups, and potential nutritional effects of fiscal policies. As a result, it helps to provide recommendations on the content of a CBT with nutritional criteria. Results show that the food categories with the most elastic demand are “bread and cereals”, "mineral waters, soft drinks and juices" and “milk, cheese and eggs”. Substitution effects exist between the following groups: “fruits” and “oils and fats”, “fruits” and “bread and cereals”, and between “milk, cheese and eggs” and “oils and fats”. For this last food category and for the one which includes sweets and chocolates, the consumption decreases when the price of “bread and cereals” increases. They are complementary goods. These relations between food groups need to be considered when defining a national CBT with nutritional criteria, and with the objective of promoting the consumption of healthier food groups while disincentivizing the consumption of the unhealthy ones. Lastly, it is important that the consumption of the healthiest foods within each food group be fiscally promoted.
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    -------------------------------------------------------------------------------- FOREWORD -------------------------------------------------------------------------------- This publication contains the proceedings of the International Sugar Conference held in Fiji from 29 to 31 October 1997. The Conference was jointly organised by the Government of Fiji and the Food and Agriculture Organization of the United Nations (FAO). The Conference addressed "Policy issues for Asia a nd the Pacific in the Next Round of Mulitlateral Negotiations." The theoretical outlook, framework and analysis, and background documentation to these issues were prepared by the Sugar and Beverage Group of the Raw Materials, Tropical and Horticultural Products Service, Commodities and Trade Division, FAO. These were published as Conference papers, covering a range of issues and included country studies for the major regional producers and consumers; the quantitative outlook to 2005; the impact of trade liberalisation on the world sugar market; and a discussion on the nurtitional aspects of sugar. Papers were also prepared and presented by internationally renowned speakers from the world sugar trade (Tote and Lyle - Australia; Sparks - United States; Siel Limited - India); grower and miller organizations (the Philippine Sugar Millers Association; the Thai Roong Ruang Group and the Australian Sugar Milling Council); government institutions (USDA and the Queensland Sugar Corporatio n) and other international organizations (World Bank and International Sugar Organization). The keynote addresses were given by the Honourable Mr Militoni Leweniqila, the Fiji Minister for Agriculture, Forestry, Fisheries and ALTA, and Mr J.N. Greenfield, the Director of the Commodities and Trade Division, who also summed up the proceedings.
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