Salience and taxation: theory and evidence
A central assumption in public finance is that individuals optimize fully with respect to the incentives created by tax policies. In this paper, we test this assumption using two empirical strategies. First, we conducted an experiment at a grocery store where we posted tax-inclusive prices for 750 p...
Gespeichert in:
| Beteiligte Personen: | , , |
|---|---|
| Format: | Buch |
| Sprache: | Englisch |
| Veröffentlicht: |
Cambridge, Mass.
National Bureau of Economic Research
2007
|
| Schriftenreihe: | NBER working paper series
13330 |
| Links: | http://papers.nber.org/papers/w13330.pdf |
| Zusammenfassung: | A central assumption in public finance is that individuals optimize fully with respect to the incentives created by tax policies. In this paper, we test this assumption using two empirical strategies. First, we conducted an experiment at a grocery store where we posted tax-inclusive prices for 750 products subject to sales tax for a three week period. Using scanner data, we find that posting tax-inclusive prices reduced demand by roughly 8 percent among the treated products relative to control products and nearby control stores. Second, we find that state-level increases in excise taxes (which are included in posted prices) reduce aggregate alcohol consumption significantly more than increases in sales taxes (which are added at the register and hence less salient). Both sets of results indicate that tax salience affects behavioral responses. We propose a bounded rationality model to explain why salience matters, and show that it matches our evidence as well as several additional stylized facts. In the model, agents incur second-order (small) utility losses from ignoring some taxes, even though these taxes have first-order (large) effects on social welfare and government revenue. Using this theoretical framework, we develop elasticity-based formulas for the efficiency cost and incidence of commodity taxes when agents do not optimize fully. |
| Umfang: | 62 S. Ill., graph. Darst. |
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| id | DE-604.BV022778877 |
| illustrated | Illustrated |
| indexdate | 2024-12-20T13:04:04Z |
| institution | BVB |
| language | English |
| oai_aleph_id | oai:aleph.bib-bvb.de:BVB01-015984408 |
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| physical | 62 S. Ill., graph. Darst. |
| publishDate | 2007 |
| publishDateSearch | 2007 |
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| publisher | National Bureau of Economic Research |
| record_format | marc |
| series | NBER working paper series |
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| spelling | Chetty, Raj 1979- Verfasser (DE-588)128831537 aut Salience and taxation theory and evidence Raj Chetty ; Adam Looney ; Kory Kroft Cambridge, Mass. National Bureau of Economic Research 2007 62 S. Ill., graph. Darst. txt rdacontent n rdamedia nc rdacarrier NBER working paper series 13330 A central assumption in public finance is that individuals optimize fully with respect to the incentives created by tax policies. In this paper, we test this assumption using two empirical strategies. First, we conducted an experiment at a grocery store where we posted tax-inclusive prices for 750 products subject to sales tax for a three week period. Using scanner data, we find that posting tax-inclusive prices reduced demand by roughly 8 percent among the treated products relative to control products and nearby control stores. Second, we find that state-level increases in excise taxes (which are included in posted prices) reduce aggregate alcohol consumption significantly more than increases in sales taxes (which are added at the register and hence less salient). Both sets of results indicate that tax salience affects behavioral responses. We propose a bounded rationality model to explain why salience matters, and show that it matches our evidence as well as several additional stylized facts. In the model, agents incur second-order (small) utility losses from ignoring some taxes, even though these taxes have first-order (large) effects on social welfare and government revenue. Using this theoretical framework, we develop elasticity-based formulas for the efficiency cost and incidence of commodity taxes when agents do not optimize fully. Looney, Adam Verfasser (DE-588)131451456 aut Kroft, Kory Verfasser aut Erscheint auch als Online-Ausgabe NBER working paper series 13330 (DE-604)BV002801238 13330 http://papers.nber.org/papers/w13330.pdf kostenfrei Volltext |
| spellingShingle | Chetty, Raj 1979- Looney, Adam Kroft, Kory Salience and taxation theory and evidence NBER working paper series |
| title | Salience and taxation theory and evidence |
| title_auth | Salience and taxation theory and evidence |
| title_exact_search | Salience and taxation theory and evidence |
| title_full | Salience and taxation theory and evidence Raj Chetty ; Adam Looney ; Kory Kroft |
| title_fullStr | Salience and taxation theory and evidence Raj Chetty ; Adam Looney ; Kory Kroft |
| title_full_unstemmed | Salience and taxation theory and evidence Raj Chetty ; Adam Looney ; Kory Kroft |
| title_short | Salience and taxation |
| title_sort | salience and taxation theory and evidence |
| title_sub | theory and evidence |
| url | http://papers.nber.org/papers/w13330.pdf |
| volume_link | (DE-604)BV002801238 |
| work_keys_str_mv | AT chettyraj salienceandtaxationtheoryandevidence AT looneyadam salienceandtaxationtheoryandevidence AT kroftkory salienceandtaxationtheoryandevidence |