Salience and Taxation: Theory and Evidence
| Title: | Salience and Taxation: Theory and Evidence |
| Author: |
Looney, Adam; Kroft, Kory; Chetty, Raj
Note: Order does not necessarily reflect citation order of authors. |
| Citation: | Chetty, Raj, Adam Looney, and Kory Kroft. 2009. Salience and taxation: theory and evidence. American Economic Review 99(4): 1145–1177. |
| Full Text & Related Files: |
Chetty_SalienceTaxation.pdf (909.9Kb; PDF) 
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| 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. |
| Published Version: | doi:10.1257/aer.99.4.1145 |
| Other Sources: |
http://www.nber.org/papers/w13330
http://www.economics.harvard.edu/app/webroot/files/faculty/1238_taxsalience_nber.pdf |
| Terms of Use: | This article is made available under the terms and conditions applicable to Open Access Policy Articles, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#OAP |
| Citable link to this page: | http://nrs.harvard.edu/urn-3:HUL.InstRepos:9748525 |
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