Search

This paper uses detailed UPC-level data from Nielsen to examine the relationship between excise taxes, retail prices, and consumer welfare in the market for distilled spirits. Empirically, we document the presence of a nominal rigidity in retail prices that arises because firms largely choose prices that end in ninety-nine cents and change prices in whole-dollar increments. Theoretically, we show that this rigidity can rationalize both highly incomplete and excessive pass-through estimates without restrictions on the underlying demand curve. A correctly specified model, such as an (ordered) logit, takes this discreteness into account when predicting the effects of alternative tax changes. We show that explicitly accounting for discrete pricing has a substantial impact both on estimates of tax incidence and the excess burden cost of tax revenue. Quantitatively, we document substantial non-monotonicities in both of these quantities, expanding the potential scope of what policymakers should consider when raising excise taxes.

This paper exploits a unique dataset (monthly observations on consumer prices and VAT rates for around 70 commodity groups in 17 Eurozone countries over 1999–2013) to identify the extent of pass through for several types of VAT change—including (a key concern, previously unaddressed) in the standard VAT rate. The impact on consumer prices proves to vary systematically and sharply across these different types of VAT reform. For example, the usual presumption of full pass through is broadly confirmed for changes in the standard rate, but pass through for reduced rates appears to be generally noticeably lower. The results are robust against endogeneity and attenuation bias.

We study the pass-through of indirect taxes on beer prices in the European Union (EU). Exploiting the variation of value added tax rates, beer excise tax rates, and beer prices in a panel of monthly data from 1996 to 2016 of all current 28 EU member states, we estimate the tax pass-through of specific beer excise taxes and ad valorem value added taxes (VAT). VAT is under-shifted at a rate of approximately 70%. Specific excise taxes are almost fully shifted to prices in the EU, but, in contrast to the empirical findings for the USA, there is no evidence of over-shifting. The difference between the two tax pass-through rates points toward the importance of imperfect competition in the European beer market. Excise tax increases are passed through faster and at a higher rate than excise tax decreases.

This paper provides novel evidence on the multi-factor Effective Marginal Tax Rates (EMTRs) for a sample of 17 OECD countries and 11 manufacturing sectors. We use a single framework encompassing capital, labour and energy taxes. Our cross-country/cross-sector approach allows us analysing the contributions of these input factors to the effective tax borne by firms, taking explicitly into account their degree of substitution, their tax incidence and the role of mark-ups. We find that the labour tax plays a particularly important role in the overall level of EMTR and that the presence of mark-ups can significantly alter the levels of the multi-factor EMTR, although without significantly altering the ranking of countries. We also find that the bulk of the variation in EMTRs is across countries, rather than across sectors (within countries). This article is protected by copyright. All rights reserved

In the vast majority of countries where a value-added tax (VAT) is in force, basic groceries are taxed at reduced rates. The reduced tax rates are intended to ensure the lowest possible prices for ...

We analyze the effects of various taxes on competing two-sided platforms. First, we consider nondiscriminating taxes. We show that specific taxes are entirely passed to the agents on the side on which they are levied; other agents and platforms are left unaffected. Transaction taxes hurt agents on both sides and benefit platforms. Ad valorem taxes are the only tax instrument that allows the tax authority to capture part of the platforms' profits. Second, regarding asymmetric taxes, we show that agents on the untaxed side benefit from the tax. At least one platform, possibly the taxed one, benefits from the tax.

This paper offer a more in depth investigation on the issue of the nature and incidence of IRAP (the local business tax applied in Italy), namely on the effects that this tax produces on certain macroeconomic variables – such as consumption, investment and exports – in the regions where the rates applied are higher. In particular, it shows the results of a territorial and sectorial empirical analysis of the trend in investments accounted on the balance sheet by firms during the period 2006-2014. The analysis of the data of tangible assets, amortization and some balance sheet indicators of financial structure, profitability and tax incidence, suitably disaggregated by region and by sector, provides useful evidence in favor of the hypothesis of the forward shifting of this tax and its adverse impact on business investment in so-called “Scoundrel Regions” as well as in all regions which have deliberated pejorative changes in the ordinary tax rate.

The adoption of the value-added tax the Democratic Republic of Congo in 2012 led to price increases that are thought to adversely affect the welfare of most Congolese households. To date, research has not yet examined the poverty and distributional impacts of this tax reform. Using data from the 2012 Living Standards Measurement Survey, this paper investigates whether the current value-added tax regime, with its exemptions, is progressive. Relying on the Quadratic Almost Ideal Demand System and several welfare measures, the analysis finds that the adoption of the value- added tax erodes the purchasing power of all Congolese households by a factor of 10 to 12 percent. Yet, the value-added tax appears to be highly progressive. Households in the top food expenditure quintile bears approximately 40 percent of the welfare loss compared with less than 10 percent among households in the bottom food expenditure quintile. Other inequality measures, such as the Gini coefficient, further support this finding that the value-added tax is progressive. Finally, the study finds that the adoption of the value-added tax leads to a worsening of the food poverty headcount by approximately 1.2 percentage points.

This paper considers a previously unexamined increase in excise taxes on gasoline and diesel fuel that were part of Washington State’s Nickel Funding Package of 2003. We fail to reject full pass-through of the amount of the tax increase to retail prices in both products. We find no significant sensitivity of retail pass-through to station locations relative to state borders or to retail competitive conditions as measured by local station density. The expansion of hypermarkets in Washington State during the period was a confounding factor in estimating tax pass-through effects.

A longstanding question in economic research has been the incidence of taxes on land and on developed parcels of real estate. In the case of agricultural land, is it the landlord or the tenant farm...

By using estimates from a Demographically-Scaled Quadratic Almost Ideal Demand System (DQUAIDS), we investigate how the German car fuels tax changes the private households’ CO2 emissions, living standards, and post-tax income distribution. Our results show that the tax implies a trade-off between the aim to reduce emissions and vertical equity, which refers to the idea that people with a greater ability to pay taxes should pay more.

Consumption tax rates targeted at specific sectors are often reformed without any empirical knowledge about the efficiency of these policies. This paper sheds light on tax incidence as well as the efficiency issue, the potential for welfare improving reform, by studying the impact of value added taxes (VAT) on prices and quantities of labor intensive services. I utilize a VAT reform targeted at a specific service sector, which creates a natural experiment set up. The VAT for hairdressing services in Finland was reduced from 22% to 8%, and the previous tax treatment still applied to other labor intensive services. The choice of the treatment and control groups was exogenous to circumstances in Finland, since these groups were selected from a wider European setting. The results suggest that hairdressers cut their prices only by half of what a complete pass-through would have implied, and that there was hardly any adjustment in equilibrium quantity due to the reform. Hairdressers were able to increase their profits significantly. There is important heterogeneity in the results according to firm size.

Taxation is at the heart of citizens’ relationship with the State. Taxes have significant effect on individual population groups, and become an important political tool as well. Nevertheless, although most countries have adopted similar principles for the operation of their tax system, there remain many differences in the way it is implemented. There are a number of variations in the application of value added taxes and other consumption taxes, including different interpretation of the same or similar concepts. This article is focused on the analysis of the opinions of different groups of inhabitants on the size of the value added tax, on the size of the real estate tax, on the issue of complicated system with lots of exceptions, and on the issue of frequent changes in taxes. The analyzed issue is a part of a broader context which has been solved within the project of specific research conducted by the team from the Department of Economics, Faculty of Informatics and Management, University of Hradec Kralove, called “The Causalities of Tax Incidence and the Modeling of Tax Processes”. This project follows another project of specific research called “The Causalities of Tax Incidence”, while the data from this project have been used for the analysis within this article.Most public finance economists acknowledge that nominal tax incidence is not necessarily identical to actual economic burden of the tax, but disagree greatly among each other on the extent to which market forces disturb the nominal tax incidence of various types of taxes under various circumstances.

This paper analyzes the effects of specific and ad valorem taxation in an industry with downstream and upstream oligopoly. We find that in the short run, i.e. when the number of firms in both markets is exogenous, the results concerning tax incidence tend to be qualitatively similar to models where the upstream market is perfectly competitive. However, both over- and undershifting are more pronounced, potentially to a very large extent. Instead, in the long run under endogenous entry and exit overshifting of both taxes is more likely to occur and is more pronounced under upstream oligopoly. As a result of this, a tax increase is more likely to be welfare reducing. We also demonstrate that downstream and upstream taxation are equivalent in the short run while this is not true for the ad valorem tax in the long run. We show that it is normally more efficient to tax downstream.

This paper seeks to produce evidence on the labor incidence of the taxation of machinery and equipment purchases by manufacturers under the state general sales tax. Using quarterly data on manufacturing labor from the Quarterly Census of Employment and Wages between 2001 and 2012, we exploit tax policy discontinuities among adjacent counties along state borders. The results demonstrate that on average there are no significant losses or gains to manufacturing labor, but the effects are heterogeneous across manufacturing subsectors.

Policymakers frequently employ tax holidays to stimulate spending and transfer state revenues to favored groups. Perhaps the most common form of this policy in the United States are “Back to School” tax holidays where states waive the retail sales tax on selected school supplies in the fall. Surprisingly, the empirical research of this policy has found that tax savings are overshifted to households. This paper argues that tax holiday dates should be assumed to be selected endogenously so as to minimize forgone revenue and maximize consumer incidence by targeting periods where prices are lowest. Causal evidence is considered in a natural experiment out of Tennessee, where legislation for a spring sales tax holiday in 2006 and 2007 for school supplies was reauthorized as part of a broader series of tax cuts. We conclude from the evidence of these Tennessee events suggest that households, on average, receive the full tax savings during these programs. However, consumer incidence is heterogeneous with some retailers recapturing the tax savings with higher pre-tax prices.

Many state and local governments exclude some medical products from the sales tax base, including some that are primarily used by men such as hair growth products. However, tampons and other menstrual hygiene products are subject to sales taxes in most states. A recent social movement advocates for the repeal of these “tampon taxes” and several class action lawsuits have been filed against states citing equal protection violations. In this article, we use the 2005 elimination of menstrual hygiene products from the sales tax base in New Jersey as a natural experiment to study who benefits from the repeal of tampon taxes. We find that the tax break is fully shifted to consumers, but that the tax break is not distributed equally. Low‐income consumers enjoy a benefit from the repeal of the tax by more than the size of the repealed tax. For high‐income consumers, the tax break is shared equally with producers. The results suggest that repealing tampon taxes removes an unequal tax burden and could make menstrual hygiene products more accessible for low‐income consumers.

Do commercial property owners internalize increases in tax payments or pass these increases onto the renters of commercial space? To address this question, I develop a nonlinear mixed effect multilevel model that exploits cross-sectional and longitudinal variation in a panel of office rent and tax rate data for 1,300 office buildings across 93 Eastern Massachusetts municipalities over a 27 year period. Findings for the full set of buildings indicate a full-pass-through of a dollar increase in the tax payment to the renter of space. However, incidence for less centrally located buildings (outside a 5km radius from the Boston central business district) ranges from $0.52 to $0.67 for a dollar increase in the tax payment; incidence for more central buildings (within 5km from the Boston central business district) ranges from $1.06 to $1.39. An incidence greater than one is in line with theoretical hypotheses regarding general tax incidence within imperfectly competitive markets. Further, these findings indicate that elasticity of demand for office space relative to elasticity of supply may be larger in more decentralized locations.

Economists broadly agree that the economic burden of corporate taxes is not entirely borne by shareholders, but also borne in part by employees or consumers. We model corporate tax avoidance in a setting where shareholders do not bear the entire economic burden of the corporate tax. We show the relation between corporate tax incidence and corporate tax avoidance depends on the elasticity of labor supply, the productivity of capital relative to labor, and the tax deductibility of labor and capital. These forces have competing effects, making the association between tax avoidance and incidence an empirical question. Empirically, we find that firms whose shareholders bear less of the economic burden of corporate taxes engage in less avoidance, and that the results are strongest under conditions predicted by our model. Our findings suggest that maximizing after-tax profits might entail less tax avoidance if shareholders do not entirely bear the corporate tax burden.

A concern about a more extensive use of the Value Added Tax (VAT) in national tax systems often arises both from its impact on aggregate consumption and its alleged regressivity over income. Yet, the empirical evidence on this latter issue is still narrow mainly due to the lack of joint data on income and expenditures with enough detail to account for commodity-specific tax rates. After discussing relevant problems in the measurement of VAT incidence over current income - which are likely to cause severe upward bias in the estimated regressivity - the paper aims at analysing the distributional implications of different VAT structures. In a framework of marginal tax reforms, relying on the concept of Gini elasticity (Yitzhaki, 1983), a general methodology is proposed to analyse and improve the distributional profile of VAT over income. Using a static microsimulation model (EGaLiTe), the methodology is applied on a comprehensive dataset of expenditures and incomes obtained by a statistical matching of two different sources representative of the Italian population. It is shown that an alternative allocation of goods among existing rates could mitigate the regressive profile of thetax over income, and that a properly designed two-rate setting could even improve the distributional outcome compared with the current setting. Finally, behavioural responses to tax-driven price changes are also simulated in order to assess the potential impact of the proposed reforms on aggregate expenditures

This study shows that whether a tax is heavy for local casinos in terms of economy-wide efficiency hinges on how much of the tax can be passed on to tourists. The division of the tax burden between casinos and tourists is affected by the relative elasticity of demand versus supply and tourists’ income factors. We find that gaming tax incidence is robust across different market structures. An uncompetitive casino industry may be more favorable for tax efficiency than its competitive counterpart. Policy choice between tax rates is observed to rest on the economic incidence of a statutory tax. We provide the economic rationale behind why a high tax is imposed inMacaoand a lenient tax is adopted inLas Vegas.

This paper examines whether a casino tax is good for local welfare in a tourism economy. We find that what is important for efficiency is not the tax rate itself but the tax incidence on tourists. Casino tourism in Macao engages in price discrimination via market segmentation. We prove that, compared with the mass market, the VIP market will grow faster with a greater price rise if a tax hike on the VIP market is not large, but will grow less rapidly with a smaller price increase if the tax hike is very large. An empirical study is carried out using data from Macao, which is typical of segmenting markets for discriminatory pricing. We show that our theory is largely consistent with observed evidence. This paper also provides some policy recommendations useful for Macao. We propose that its casino tax should be kept low at its current rate in the mass market but be raised substantially in the VIP market if its economic growth is to be made less unbalanced and more sustainable.

Pollution taxes are believed to burden low-income households that spend a greater than average share of income on pollution-intensive goods. Some proposals offset that effect by returning revenue to low-income workers via reduced labor tax. We build analytical general equilibrium models with both high-skilled and low-skilled labor, and we solve for the change in real net wage of each group. Decomposition shows the separate effects of the tax rebate, higher product prices, and the changes in relative wage rates. We also include numerical examples. Even though the pollution tax injures both types of labor, in most cases we find that returning all of the revenue to low-skilled workers is still not enough to offset higher product prices. Changes in relative wage rates may further hurt low-skilled labor. Protecting low-income workers is possible in this model only if they are defined as those below a relatively low wage threshold, but we discuss many possible elaborations of this model that could affect those results.

Because excise taxes are independent of product price, rate hikes are predicted to lower the relative cost of high-priced goods, encouraging a shift toward their purchase. Using scanner data on cigarette sales from twenty-nine states over a six-year period, we examine whether tax hikes encourage a flight to quality. Results demonstrate that a one-cent hike in taxes increases retail prices of name-brand and generic cigarettes by exactly one cent. We find no tax-induced substitution toward name brands but a large substitution away from carton to pack sales, suggesting that tax hikes encourage within-product changes in purchase but little between-product substitution.

Based on a unique database consisting of hundreds of thousands of non-alcoholic beverage price records collected in about 800 supermarkets in France, we evaluate the impact on prices of the soda tax, an excise on drinks with added sugar or sweetener, introduced in January 2012 in France. We adopt a difference in differences approach and find that the tax was passed-through to consumer prices gradually over the first semester of 2012. After 6 months, the tax was fully shifted to soda prices while the pass-through to prices of fruit drinks and flavored waters was not complete. We also find that the impact of this tax was different across retailing groups and beverage brands.

This paper combines new, author-collected tax data with data both from the American Chamber of Commerce Researchers Association (ACCRA) cost of living index (COLI) and from the Tax Burden on Tobacco (TBT) to measure the relative effects of city, county and state excise cigarette taxation on cigarette prices. The results indicate that a $1 increase in the state excise cigarette tax increases cigarette prices between $1.10 and $1.14, but that a $1 increase in a city or county-level excise tax increases prices by $1.07. These findings are similar between premium and generic cigarette brands. Additionally, urban areas located near states with lower cigarette taxes tend to have lower cigarette prices relative to urban areas located near states with the same or higher tax rates.

In this paper we are presenting an analysis of shift of tax burden from income onto consumption. The analyzed consumption tax is value added tax, while destination principle is applied. The result of analysis is finding that the contemporary tax policy in the Czech Republic is suboptimal from the point of view of tax burden distribution between production factors and consumption. Theoretical findings are confirmed by analysis of data from European countries. Every percentage above the EU27 average of consumption taxes share on total tax quota results into increase of GDP growth by 0,04% to 0,05% p.a. The Czech political "elite" determines the fiscal policy to be popular and recent surveys confirmed Czechs' dislike towards consumption taxes, especially value added tax. Therefore the huge cost of the Czech tax system - high taxation of wages and low value added tax - can be viewed also as agency cost.

This paper provides an overview of the short-term household-level effects and the national policy responses in Namibia to the rapid acceleration in food prices in 2007/2008. Price increases are found to have disproportionately affected low-income households, who have higher relative shares of food expenditure and whose own-production was reduced due to crop failures, and urban households who rely relatively less on in-kind consumption and more on cash purchases. Drawing on the literature on tax incidence and welfare dominance the paper further assesses the potential distributional and poverty reduction effects of the ‘zero-rating’ of the VAT for basic food items that was introduced by the Namibian government to mitigate the impacts of the food crisis. The results show that the VAT reform only led to a small and statistically insignificant improvement in the highly unequal distribution of consumption expenditure in Namibia. An illustration is provided of how a more effective way to reduce poverty and shield the poor from the worst impact of the crisis is through the existing system of cash transfers.

Recent empirical work on tax incidence suggests that after-tax price responses are independent of the tax change direction. This paper investigates asymmetric price responses to ad-valorem tax changes in the Brazilian food market for 10 goods in 16 states during the period 1994–2008. Our results suggest that when tax rates increase, tax full shifting occurs for 2 of the 10 goods and tax overshifting occurs for one of the 10 goods; the price response to tax cuts is an undershifting for all goods. Moreover, this last result is similar to our estimation of (average) tax incidence (undershifting). We also investigate the short-term and long-term relationships between prices and VAT rate parameters and find that prices seem to respond to tax shocks within four months.

This paper study how a change in specific and ad valorem taxes under nonlinear pricing affects tax incidence. We show that an increase in either tax rate leads to a higher usage fee for all consumers, whereas the fixed fee under reasonable assumptions will fall. Finally, the model shows that the presumption in favor of ad valorem taxes over specific taxes also holds under nonlinear pricing and incomplete market coverage.

Problem statement: Tax incidence is a basic topic in public economics as the tourism industry is an increasingly major contributor to government revenue. Generally, government taxation objectives are for the purpose of financing programs that improve people’s lives and economic prosperity, accelerate economic growth and allow for access to sustainable development. In the first view, tax policy decisions by government are based on their effects on the distribution of economic welfare. Therefore, to provide incentives for governments to select a suitable tax policy, exportability of tax is important. Hotel room tax is one of the main parts of tourism tax. Despite the importance of tax for government, it seems that the exportability of hotel room tax is still not well known. Therefore, understanding the counteraction of foreign visitors with respect to its main factors is important for the Malaysian government and tourism management. To achieve these aims, this study examines tax incidence effects on the tourism market. Approach: We use hotel room as representative of tourism market. Quarterly data from 1995-2009 are used and a dynamic model of simultaneous equation is employed. Results: Our results indicate that in the short run supply is elastic and demand is inelastic.But in the long run both demand and supply are elastic to price. Conclusion: Based the results if the government imposes one ringgit (Malaysian currency) tax on hotel room price, the tourist contribution is more than 89 and 74% in the short run and long run respectively. Hence, we conclude that the Malaysian tourism market is exportable. Our results also indicate that tax on hotel has no negative social effects in the short run.

In this paper we analyze the incidence of the VAT and its effects on the income distribution. To identify these effects, we rely on two tax reforms undertaken in Mexico that increased the VAT rate for a group of cities and left the rest unaffected. We compare the inflation rate of the affected cities with the exempted cities before and after the law changed. We find that the effect on prices is limited and conclude that the burden of the tax is indeed shared between producers and consumers. Regarding welfare, we find that the VAT is progressive in both absolute and relative terms to the overall expenditure. Finally, we show that an identical change in the VAT rate when inflation is high and persistent doubles its pass-through to inflation and its welfare loss for the average household.

The aim of this paper is to analyse progressivity of value added tax in the Czech Republic under the framework of both annual incidence and lifetime incidence. Moreover, impact of the harmonisation of VAT rates connected with the accession of the Czech Republic to the EU on the income distribution is examined. The burden table serves to show the distribution of the VAT burden among households by income categories; the generalised entropy measures and the Gini coeffi cient are used for measurement of inequality of income. Results show that the Czech VAT is regressive when annual income is analysed while the lifetime income analysis indicated that VAT is progressive. Furthermore, the results suggest that the distribution of income (annual as well as lifetime) after taxation was more equal before the harmonisation, and that impact of the changes in VAT rates in 2004 was likely larger on the lower-income households.

This article examines the redistributive impacts of indirect tax policies in Turkey. By applying S-Gini Indices to measure progressivity with different inequality aversion parameters, we examine if indirect taxes are progressive or not in Turkey. We make the standard tax incidence analysis by using statutory tax rates on final goods. In addition to the standard tax incidence analysis, we estimate effective tax rates by using Input-Output tables to cover the impact of taxation on imported and intermediary goods. The results show that the incidence of indirect taxes is sensitive to the welfare indicator chosen. While the indirect taxes reduce expenditure inequality, they increase income inequality. Effective indirect tax rates prove the importance of taxation on imported goods and intermediate goods, which are ignored by the standard tax incidence analysis.

We develop a simple general equilibrium model in the style of Harberger to analyze the distributional effects of the proposed “environment tax” on carbon in Japan. We derive closed-form equations that show how a change in the tax rate affects the economy-wide return to capital, wage, and output prices. The two main features of the economy that determine the sources-side incidence of the tax are the factor intensities of the polluting and nonpolluting industries and the elasticity of substitution in production between polluting inputs and labor or capital. The input that is a better substitute for pollution usually bears a lower burden of the tax than the other input, although we find conditions under which this is not true. If the polluting sector is relatively capital intensive, then capital can bear a higher burden of the tax. Calibrating this model to the Japanese economy, we find a trade-off between these two effects. Polluting industries are more capital intensive, but capital is likely to be a better substitute for pollution than is labor.

Traditional treatments of tax pass-through examine the tax incidence, which makes sense when the law of one price holds. However in markets with a price distribution, the tax incidence may vary across the distribution.

Tax incidence and tax competition have largely been studied separately. Models assessing the incidence of excise taxes do not consider strategic interaction and exclusively assess the pass-through of taxes to prices. These settings focus on imperfectly competitive markets where prices can react more (less) than proportionally to a variation in tax rates. On the other hand, tax competition models focus on the strategic interactions arising because of a shared tax base but assume producer prices to be constant. Hence, the pass-through of taxes is restricted to be fully on consumers. This paper extends Keen (1997) by relaxing this assumption and, thus, by allowing local governments to internalize the possibility that taxes are over-shifted (undershifted). Interestingly, market structure (that was absent in previous settings), turns out to be one of the determinants of the vertical reaction function in this model; particularly determining the sensitivity of local tax setters to a variation of higher-tier taxes.

The present article generalizes economic literature on the incidence of consumption taxes to general schedules of consumption taxes dependent on price. Previous studies were limited to the cases of per unit and ad valorem taxes. Three main contributions are made. Methodologically, the elasticity of the tax function is introduced as a new parameter so that the price-elasticity of general consumption tax schedules in different models of imperfect competition might be dealt with in a tractable manner. Theoretically, existing results on the difference between the incidence of ad valorem and per unit consumption taxes are generalized to non-linear consumption taxes: the larger the elasticity of the tax function, the smaller the share of consumption tax borne by consumers. From the perspective of applied public economics, it is shown how the regulator may reduce prices in very uncompetitive markets by increasing the elasticity of the consumption tax on a targeted range of producer prices.

A basic tenet in elementary microeconomics is tax incidence equivalence. This tenet holds that the burden of a unit tax on buyers and sellers is independent of who actually pays the tax. By contrast, policymakers and the public often mistake statutory incidence for economic incidence. Recent evidence of the empirical validity of tax incidence equivalence is mixed. In this paper, using competitive laboratory markets, I test both tax incidence equivalence and an analogous theorem I refer to as subsidy incidence equivalence. For sufficiently large markets, the results show strong support for both theories. In these markets, there is little to no evidence, even in the short run, of the popular misperception that statutory incidence equals economic incidence. In smaller markets in which competitive forces are weaker and relative bargaining strengths may play a role, the evidence for tax incidence equivalence is weaker as minor price discrepancies may persist between markets.

An instrumental variables model of state and local tax incidence is estimated for the years 1977, 1985, and 1991. Tax exporting through deductibility of state and local taxes has a significant positive effect on tax progressivity. I find a negative neighbor effect, with more progressive states geographically contiguous with more regressive states. Party control by Republicans is associated with a more regressive tax structure. Expenditure and tax progressivity are not closely related to one another, with higher welfare spending financed by proportionally higher tax burdens throughout the income distribution. Greater inequality in pre–tax income distributions is offset by more progressive tax systems, but the degree of offset is small.

By measuring the tax burdens for both Chinese urban and the rural households in the 1990s, we find that the taxes on the urban households were mainly indirect taxes through consumption of goods and services while those on rural households were largely direct taxes such as state agricultural taxes, local fees and tuition. Although the incomes of rural households were much lower than those of their urban counterparts, rural households were taxed much more heavily than their urban counterparts. By calculating the total tax burdens for different income groups of both urban and rural households, we find that rural tax in general was much more regressive. The main reasons for rural tax becoming more acute in the 1990s were the increasing rural income disparity and the uneven tax incidence biased against poorer households. Policy implications are drawn for the ongoing rural tax reform, the rearrangement of inter-governmental relationships as well as improving local governance in China.

The authors present an example of the effect a change in the excise tax can have on retail gasoline prices. The findings provide support for standard economic theory, as well as provide a vehicle for illustrating some of the subtleties of the analysis, including the implicit assumptions regarding the implications for the buying and selling prices of middlemen.

The paper investigates tax incidence in a two-person bargaining model where one party is taxed. The condition under which the non-taxed party shares the burden of taxes (or benefit of subsidies) is characterized. Sufficient conditions for the tax burden to fall entirely on the taxed party are given. Also, a sufficient condition for the non-taxed party actually to benefit from taxation is given.

In the simple framework of a static model for equilibrium wages and labour supplies, we show that the incidence of income tax on equilibrium wages can be measured independently from the individual ...

Controversy over public health policies targeting carbonated soft drinks has catalyzed cross-disciplinary debate. Though beverage demand is characterized by purchases from multiple categories per trip, existing research using soda data predominantly employs discrete choice models, which restrict consumers to single unit choices. This paper instead combines a multiple-choice utility function with a hierarchical Bayesian model to estimate household-level preferences across beverages. I find that households in less healthy counties (as measured by mean body mass index) consume more regular soda per capita, have stronger preferences, and are less price sensitive than households in more healthy counties, suggesting that soda tax proposals should be county-specific. Because market players possess varying degrees of market power, I also study soda tax incidence. Simulations of equilibrium prices in various tax scenarios demonstrate that the assumption of 100% pass-through to prices, ubiquitous in soda tax research, underestimates the true change in prices, further underscoring the need for a county-level approach. Calculations then reveal that most of a counterfactual tax-induced shift in consumption is due to an income effect and low cross-price elasticities, so that while city governments are unlikely to raise enough revenue to cover the healthcare costs related to soda consumption, the downstream health benefits induced by a soda tax compensate most households for the reduction in utility.

This article discusses tax incidence in Madagascar and asks who pays the taxes that finance government spending. Its main concern is to identify the progressivity of different taxes levied in Madagascar, based on the consumption and income patterns found in the 1994 Enquete Permanente aupres des Menages, a nationally representative survey. The results suggest that most taxes are progressive, meaning that wealthy households pay proportionately more of these taxes relative to their expenditures than do poor households. Two notable exceptions are taxes on kerosene and export duties on vanilla, both of which are regressive. These results are consistent with those of a study of Ghana, the only other comparable research on tax incidence in Africa. That study found taxes on kerosene and cocoa exports to be the most regressive taxes in Ghana. Making firm policy recommendations for tax reform would require an analysis of the economic efficiency and administrative efficacy of different taxes to complement this article's work on their equity implications. Nevertheless, the results suggest that the movement away from trade taxes, especially export duties, and toward broadly based value added or income taxes would be more equitable and more economically efficient. The only legitimate impediment to such reforms in Madagascar is administrative, that is, the government's ability to collect different taxes effectively. Although administrative efficiency may be a problem for value added or income taxes, taxes on petroleum products (except kerosene) are highly progressive and provide a good tax handle.

This paper presents a methodological approach for the analysis of tax incidence that encompasses familiar forms of taxation in a general and analytically convenient model. In oligopolistic industries, the performance of a tax depends on the sensitivity of the unit tax rate to changes in industry output. Output-elastic tax schedules are less likely to be over-shifted and have superior welfare properties relative to regulatory instruments that are less responsive to the equilibrium market quantity. For revenue neutral tax reforms, the finding of Delipalla and Keen (1992) that ad valorem taxes welfare-dominate specific taxes under oligopoly is derived as a special case of this general result.

This paper studies under what conditions a ‘double dividend’ may occur in the sense that both environmental quality and employment rise. A simple static general equilibrium model is employed in which tax policy faces the dual task of internalising a negative environmental externality and raising revenue to finance public consumption. The model features a clearing labour market with both labour demand and supply and a fixed factor of production (e.g. capital). Hence, we can study tax incidence and its effect on employment, environmental quality, and the marginal cost of public funds. It is shown for the case of an upward sloping labour supply curve and less than full tax shifting by employers that a shift towards greener preferences cannot yield a double dividend, even if the fixed factor is important. However, if labour supply curve bends backwards, more environmental concern confers a double dividend.

** Abstract - This research estimates the distributional effects of replacing existing federal income taxes with a flat tax as proposed by Representative Richard Armey and Senator Richard Shelby. Different assumptions about tax incidence and how the flat tax would be implemented yield somewhat different estimates of the distribution of gains and losses. Nevertheless, our main conclusions appear to be quite robust. Switching to the proposed flat tax would increase the tax burdens of a majority of taxpayers and would significantly redistribute tax burdens, mainly from the top decile to other taxpayers. This pattern of redistribution persists, although the top decile's gains are lessened, even if the flat tax is modified to make it more progressive.

We examine the common, but unexamined, case of a tax or government mandate whose cost differs across firms within the same labor market. Our theoretical model shows that this variation can lead to employment reallocation across firms and dead-weight losses, even if there is no aggregate employment effect. Using firm level unemployment insurance tax data, we find that while the market level tax is mostly born by the worker, individual firms can only pass on a small share of the within market differences. Thus, in some cases differences in taxes across firms can lead to large dead-weight losses.