Working Paper: NBER ID: w12924
Authors: Amy Finkelstein
Abstract: This paper tests the hypothesis that the salience of a tax system affects equilibrium tax rates. To do this, I analyze how toll rates change after toll facilities adopt electronic toll collection. Unlike manual toll collection, in which the driver must hand over cash at the toll collection plaza, electronic toll collection automatically debits the toll amount as the car drives through the toll plaza, thereby plausibly decreasing the salience of the toll. I find robust evidence that toll rates increase following the adoption of electronic toll collection. My estimates suggest that, in steady state, toll rates are 20 to 40 percent higher than they would have been without electronic toll collection. Consistent with the hypothesis that decreased tax salience is responsible for the increase in toll rates, I also find evidence that the short run elasticity of driving with respect to the actual toll declines (in absolute value) following the adoption of electronic toll collection. I consider a variety of alternative explanations for these results and conclude that these are unlikely to be able to explain the findings.
Keywords: Tax Salience; Electronic Toll Collection; Toll Rates
JEL Codes: H11; H71; R48
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Decreased salience of tolls (H29) | Adoption of ETC (Q52) |
| Adoption of ETC (Q52) | Toll rates (R48) |
| Short-run elasticity of driving with respect to the toll (R48) | Changes in driving behavior (R48) |