Salience and Taxation: Theory and Evidence

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Salience and Taxation: Theory and Evidence

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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.
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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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  • FAS Scholarly Articles [7362]
    Peer reviewed scholarly articles from the Faculty of Arts and Sciences of Harvard University
 
 

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