1. In 2018 the UK government implemented the UK sugar tax to motivate producers of soft drinks to reduce the sugar content in their drinks. A researcher intends to exploit this unexpected change in tax policy as a quasi-experiment to empirically estimate the tax incidence of sugar
taxes on consumers using a diff-in-diff approach (a) Discuss the concept of the diff-in-diff approach in this example. What is the identification assumption under which this approach would be valid? Propose an empirical approach to
check whether the identification assumption is valid in this case.
(b) Construct a situation, where the identification assumption is not valid. Propose an alter-
native approach that would be feasible in this specific situation.