Working Paper: NBER ID: w19410
Authors: Wojciech Kopczuk; Justin Marion; Erich Muehlegger; Joel Slemrod
Abstract: The canonical theory of taxation holds that the incidence of a tax is independent of the side of the market which is responsible for remitting the tax to the government. However, this prediction does not survive in certain circumstances, for example when the ability to evade taxes differs across economic agents. In this paper, we estimate in the context of state diesel fuel taxes how the incidence of a quantity tax depends on the point of tax collection, where the level of the supply chain responsible for remitting the tax varies across states and over time. Our results indicate that moving the point of tax collection from the retail station to higher in the supply chain substantially raises the pass-through of diesel taxes to the retail price. Furthermore, tax revenues respond positively to collecting taxes from the distributor or prime supplier rather than from the retailer, suggesting that evasion is the likely explanation for the incidence result.
Keywords: tax incidence; diesel taxes; passthrough rates; tax evasion; point of collection
JEL Codes: H22; H26; H71; Q48
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Point of tax collection (from retail to upstream) (H22) | Passthrough of diesel taxes to retail prices (H29) |
| Point of tax collection (from retail to upstream) (H22) | Reduction in tax evasion (H26) |
| Reduction in tax evasion (H26) | Increase in tax revenues (H29) |
| Point of tax collection (from retail to upstream) (H22) | Increase in tax revenues (H29) |
| Point of tax collection (from retail to upstream) (H22) | Evasion opportunities differ across the supply chain (F12) |