Working Paper: NBER ID: w23632
Authors: Benjamin Hansen; Keaton Miller; Caroline Weber
Abstract: We provide the first general empirical test of tax invariance (TIV). When a 25 per-cent tax remitted by manufacturers was eliminated in Washington state and the retail cannabis excise tax was simultaneously increased from 25 to 37 percent—a shift in-tended to be revenue-neutral—TIV did not hold. Manufacturers kept two-thirds of their tax savings instead of passing all their savings through to retail firms via lower prices as predicted by TIV. One-third of the retail tax increase was passed on to consumers via higher retail prices – TIV would have predicted constant or even declining tax-inclusive retail prices.
Keywords: Tax Invariance; Cannabis Market; Tax Policy; Price Pass-Through
JEL Codes: H2; H20; H21; H22; H23; H25; H26; H32; H71; I1; I18; K4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tax savings (H20) | prices passed to retail firms (L11) |
| tax savings (H20) | retail tax increase (H29) |
| retail tax increase (H29) | consumer prices (P22) |
| tax reform (H20) | profits for manufacturers (L60) |
| tax reform (H20) | negative impact on retailers and consumers (F61) |
| failure of TIV (O33) | increased profits for manufacturers (L60) |
| failure of TIV (O33) | higher retail prices (D49) |
| failure of TIV (O33) | negative welfare effect (D62) |
| tax reform (H20) | prices in the cannabis market (D41) |