Salience and taxation with imperfect competition

Arbeitspapier

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 highlighting interactions between tax salience and market structure. We estimate the necessary inputs to the formulas by using Nielsen Retail Scanner and Consumer Panel data covering grocery stores and households in the U.S. and detailed sales tax data. We estimate a large amount of pass-through of taxes onto consumer prices and find that households respond more to changes in prices than taxes. We also estimate significant heterogeneity in tax salience across households. We calibrate our new formulas using these results and conclude that essentially all of the incidence of sales taxes falls on consumers, and the marginal excess burden of taxation is larger than estimates based on standard formulas that ignore imperfect competition and tax salience.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Papers ; No. 2022-09

Classification and Topics

• Classification: Wirtschaft ; Consumer Economics: Empirical Analysis ; Firm Behavior: Empirical Analysis ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection ; Welfare Economics: General ; Oligopoly and Other Imperfect Markets ; Business Taxes and Subsidies including sales and value-added (VAT) ; State and Local Taxation, Subsidies, and Revenue
• Subject: Sales taxes ; Marginal Excess Burden ; Incidence ; Salience ; Imperfect Competition

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kroft, Kory ; Laliberté, Jean-William P. ; Vizcaíno, René Leal ; Notowidigdo, Matthew J.
• Event: Veröffentlichung
• (who): Banco de México
• (where): Ciudad de México
• (when): 2022

Further information

• Handle: http://hdl.handle.net/10419/273665
• Last update: 10.03.2025, 11:42 AM CET