Working Paper: NBER ID: w27409
Authors: Kory Kroft; Jean-William P. Laliberté; Ren Leal-Vizcaíno; Matthew J. Notowidigdo
Abstract: This paper studies commodity taxation in a model featuring heterogeneous consumers, imperfect competition, and tax salience. We derive new formulas for the incidence and marginal excess burden of commodity taxation, and we find that tax salience and market structure interact when considering tax incidence but do not directly interact when considering the marginal excess burden. We estimate the necessary inputs to the formulas by combining Nielsen Retail Scanner data from grocery stores in the US with detailed sales tax data. We calibrate our new formulas and conclude that the incidence of sales taxes on consumers is increasing in tax salience, and the marginal excess burden of taxation is larger than standard formulas that ignore imperfect competition and tax salience.
Keywords: taxation; imperfect competition; tax salience; consumer behavior
JEL Codes: D12; H2; H25; H71
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tax salience (H26) | incidence of sales taxes on consumers (H22) |
| imperfect competition (L13) | incidence of sales taxes on consumers (H22) |
| consumer heterogeneity in attention to taxes (H31) | passthrough and incidence (H22) |
| greater dispersion in consumer inattention (D19) | welfare cost of taxes (D69) |
| tax salience (H26) | welfare cost of taxation (H21) |
| imperfect competition and tax salience (D43) | marginal excess burden of taxation (H21) |