UC Berkeley

This dissertation combines three projects, each analyzing how markets or individuals respond to different policy or environmental changes in low and middle income countries. Each study theoretically motivates the hypotheses of interest and combines novel data from a wide range of sources to test them.

The first chapter examines the role of prices of foods, rich in different nutrients in the obesity and diet-related disease epidemic in Mexico. In response to the growing epidemic of obesity and diet-related chronic diseases, a number of governments are proposing taxes designed to reduce the consumption of unhealthy foods and thereby improve health outcomes. In this paper, I provide the first estimates of the effects of price changes of foods rich in sugar on the prevalence of obesity and diet-related chronic diseases, such as diabetes and hypertension. The analysis is made possible by rich longitudinal and nationally representative micro data on food prices and objective measures of health outcomes in Mexico for the period 1996-2010. I employ a unique bar-coded level price dataset with product-specific nutritional information combined with two datasets on health outcomes: (1) a state-level administrative dataset and (2) an individual panel dataset. Exploiting plausibly exogenous within-state variation in prices over time, I show that a decrease in the price of sugar-rich foods significantly increases the prevalence of abdominal obesity, type 2 diabetes, and hypertension. In addition, the least healthy and most impatient individuals seem to be more responsive to price changes, suggesting that time preferences are an important mechanism driving the results. Overall, the effect of sugar prices on the incidence of chronic diseases is large. Since the signing of NAFTA, I estimate that the reduction in prices of sugar-rich foods explains 20 percent of the increase in diabetes.

The second chapter, joint work with Paul J. Gertler, identifies how junk food and soda taxes are passed through to consumer prices. I use a unique bar-code level price dataset with product-specific nutritional information and the introduction of junk food and soda taxes in Mexico in January 2014 to assess whether and how the excess tax burden is split between consumers and producers. Preliminary results suggests that pass-through is the strongest for sodas, followed by snacks, candy and cakes. For these products a full pass-through materializes within six months after the introduction of the tax. On average, the tax is not fully passed through to consumer prices in the case of cereal and cookies. However, the pass through is increasing over time for the latter, reaching a full pass-through by May 2014. We also observe large variation in pass-through across cities - from over to under shifting; hence observing decreases in consumer prices as well. Using price elasticities of health from Gracner (2015), a one time introduction of junk food and soda taxes in Mexico would imply approximately one and a half percentage point decrease in abdominal obesity and between a quarter to one half of a percentage point decrease in type II diabetes prevalence, under the assumption of a symmetric response to a price change.

The third chapter, based on joint work with Paul J. Gertler, Marco Gonzalez-Navarro, and Alex D. Rothenberg, provides evidence of the effects of road quality on local economic activity using temporal variation generated by maintenance investments in roads. A long panel of firms and households allows us to shed light on the effects of road quality for pre-existing households and firms. Methodologically, we propose a new road quality instrument using a nationwide panel dataset of road surface roughness to predict road quality from temporal variation in budgets exogenously allocated to different road maintenance authorities. We first show that higher road network quality improves household consumption and income. We then show that this is partly due to job creation in the manufacturing sector. Third, we show evidence of an occupational shift from agriculture into manufacturing and higher profits for those who stay in agriculture. The gap in average income between agriculture and manufacturing employment is reduced with road quality but not eliminated. Because wages in the manufacturing sector do not change with road quality the results are consistent with dual labor markets in Indonesia.