Salience and Taxation: Theory and Evidence

W. Looney, Kory Kroft and Raj Chetty

Scholarly Articles from Harvard University Department of Economics

Abstract: Using two strategies, we show that consumers underreact to taxes that are not salient. First, using a field experiment in a grocery store, we find that posting tax-inclusive price tags reduces demand by 8 percent. Second, increases in taxes included in posted prices reduce alcohol consumption more than increases in taxes applied at the register. We develop a theoretical framework for applied welfare analysis that accommodates salience effects and other optimization failures. The simple formulas we derive imply that the economic incidence of a tax depends on its statutory incidence, and that even policies that induce no change in behavior can create efficiency losses.

Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1319)

Published in American Economic Review

Downloads: (external link)
http://dash.harvard.edu/bitstream/handle/1/9748525/Chetty_SalienceTaxation.pdf (application/pdf)

Related works:
Journal Article: Salience and Taxation: Theory and Evidence (2009)
Working Paper: Salience and taxation: theory and evidence (2009)
Working Paper: Salience and Taxation: Theory and Evidence (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hrv:faseco:9748525

Access Statistics for this paper

More papers in Scholarly Articles from Harvard University Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Office for Scholarly Communication ().