Working Paper: CEPR ID: DP18603
Authors: Felix Montag; Robin Mamrak; Alina Sagimuldina; Monika Schnitzer
Abstract: Pass-through determines how consumers respond to taxes. We investigate the impact of imperfect price information on pass-through of commodity taxes. Our theoretical model predicts that the pass-through rate increases with the share of well-informed consumers. Pass-through is higher for the minimum price, paid by well-informed consumers, than for the average price, paid by uninformed consumers. Moreover, pass-through to the average price is non-monotonic with respect to the number of sellers. An empirical analysis of multiple recent tax changes in the German and French retail fuel markets confirms our theoretical predictions. Our results have implications for tax policy and shed light on the relative effectiveness of Pigouvian taxes versus regulation.
Keywords: Passthrough; Taxes; Imperfect Information; Competition
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| share of well-informed consumers (D16) | passthrough rate of commodity taxes (H25) |
| passthrough to the minimum price paid by well-informed consumers (D41) | passthrough to the average price paid by uninformed consumers (D41) |
| number of sellers (D49) | passthrough rate to the average price (G19) |
| number of sellers beyond a threshold (D43) | passthrough rate to the average price (G19) |