From the "People Respond to Incentives" File

From the Chicago Sun Times:

Revenues from Chicago's new bottled water tax are trickling in -- at a rate nearly 40 percent below projections -- exacerbating a budget crunch that has already prompted Mayor Daley to order $20 million in spending cuts.

January collections were $554,000. That's far short of the $875,000-a-month needed to meet the city's $10.5 million-a-year projection.

Wendy Abrams, a spokeswoman for the city's Budget and Management Office, said it's too early to sound the alarm.

"Since January is generally one of the coldest months of the winter, we don't think January collections are a strong indicator of potential revenue for the remainder of the year," she said.

David Vite, president of the Illinois Retail Merchant's Association, acknowledged that bottled water consumption rises with the temperature.

But that doesn't explain away what Vite calls "enormous increases" in suburban bottled water sales, particularly in stores near the Chicago border.

Granted, it's a bit early to start slinging arrows at a policy.  The numbers are from January, but I would like to see how enormous the "enormous increases" in suburban areas are.  We know people respond to incentives, and raising in taxes in one jurisdiction without a symmetric increase in a nearby jurisdiction just gives an incentive for people to go to that other jurisdiction.

Remember your Micro Principles:  there are three determinants of the elasticity of demand.  They are 1.  the availability of close substitutes, 2.  the share of income spent on the good, 3. the time that people have to adjust.  What's in play here is 1.  There are tons of substitutes for bottled water (soda, "diet" soda (perhaps diet soda should be called "fattening" soda???), and bottled water bought in other jurisdictions) and my sense is that the demand for bottled water is price elastic, even in the short run.  Methinks the activists who are so certain that bottled water is one of those evils that society must be rid of didn't think this one through.   I want even go into the cleanliness of municipal water supplies in this post.