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Hidden Baggage : Behavioral Responses to Changes in Airline Ticket Tax Disclosure

Author

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  • Sebastien Bradley
  • Naomi E. Feldman
Abstract
We examine the impact on air travelers of an enforcement action issued by the U.S. Department of Transportation in January 2012 that required U.S. air carriers and online travel agents to incorporate all mandatory taxes and fees into their advertised fares. Exploiting cross-itinerary ticket tax variation within international city market pairs, we provide evidence that the more prominent display of tax-inclusive prices is associated with a significant reduction in tax incidence on consumers and a decline in passenger volume along more heavily-taxed itineraries. Ticket revenues are commensurately reduced. These results suggest a pronounced degree of inattention to ticket taxes prior to the introduction of full-fare advertising and reinforces the theoretical predictions and experimental findings of the literature on tax salience in a quasi-experimental context where taxes average more than $100 per ticket and where firms may engage in price-setting behavior.

Suggested Citation

  • Sebastien Bradley & Naomi E. Feldman, 2018. "Hidden Baggage : Behavioral Responses to Changes in Airline Ticket Tax Disclosure," Finance and Economics Discussion Series 2018-057, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2018-57
    DOI: 10.17016/FEDS.2018.057
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    Cited by:

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    2. Botteon Costa, Raone & Ferman, Bruno & Monte, Daniel, 2020. "Baggage fees in airlines: Is this a good idea?," MPRA Paper 101864, University Library of Munich, Germany.
    3. Sunjoo Kwak & Jongmin Shon, 2022. "Tax Salience and Cyclical Asymmetry in Tax Rate Adjustments: Testing the Indirect Tax Hypothesis," Hacienda Pública Española / Review of Public Economics, IEF, vol. 240(1), pages 3-29, March.
    4. Santiago Garriga & Dario Tortarolo, 2020. "Wage effects of employer-mediated transfers," Discussion Papers 2020-08, Nottingham Interdisciplinary Centre for Economic and Political Research (NICEP).
    5. Vasudha Jain & Mark Whitmeyer, 2021. "Search and Competition with Flexible Investigations," Papers 2104.13159, arXiv.org.
    6. Wozny, Florian, 2024. "Tax Incidence in Heterogeneous Markets: The Pass-through of Air Passenger Taxes on Airfares," IZA Discussion Papers 16783, Institute of Labor Economics (IZA).
    7. Johannes Kasinger, 2024. "Shrouded Sin Taxes," Papers 2409.01493, arXiv.org.
    8. Ku, Edward C.S., 2022. "Developing business process agility: Evidence from inter-organizational information systems of airlines and travel agencies," Journal of Air Transport Management, Elsevier, vol. 103(C).
    9. Fox, William F. & Hargaden, Enda Patrick & Luna, LeAnn, 2022. "Statutory incidence and sales tax compliance: Evidence from Wayfair," Journal of Public Economics, Elsevier, vol. 213(C).
    10. Chuang, Shih-Hsien, 2024. "Behavioral optimization of US air travel taxes," Research in Transportation Economics, Elsevier, vol. 105(C).

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    More about this item

    Keywords

    Tax salience; Airlines; Ticket taxes; Tax incidence;
    All these keywords.

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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