Empirical Analysis of Consumption Taxes: Evidence From Micro-Data
Saturday, Jan. 7, 2017 2:30 PM – 4:30 PM
Hyatt Regency Chicago, Crystal C
- Chair: Tuomas Kosonen, Labour Institute for Economic Research
The Welfare Effects of Commodity Taxation With Endogenous Product Variety: Theory and Evidence
AbstractWe develop a general framework for valuing changes in product variety. Our framework implies a general formula for the marginal welfare gain of increasing commodity taxes under imperfect competition. We<br />
implement the formula using detailed data on state sales taxes merged to Nielsen retail scanner data. The sales tax data provides statutory variation in tax rates between states as well as variation in sales<br />
tax exemptions across product categories between and within states. We use these sources of variation are used to identify the effect of sales taxes on average prices, expenditures, and product variety, and<br />
we use these estimated effects to calibrate our marginal welfare gain formula.
What Goes Up May Not Come Down: Asymmetric Passthrough of Consumption Taxes
AbstractThis paper shows that prices respond asymmetrically to increases and decreases in consumption taxes. We combine monthly commodity price data with information on value added tax (VAT) rates across several European countries for the period 1996-2015 and show that prices respond more to VAT increases than to decreases. We explain this asymmetric pass-through to prices with a simple fairness argument based on the findings of Kahneman et al. 1986. Our finding cautions against using incidence estimates derived in previous studies without accounting for the direction of the tax change and questions the effectiveness of reductions in VAT to achieve redistribution or stimulate economic growth.
University of California-Berkeley
Congressional Budget Office
University of California-Santa Cruz
- H2 - Taxation, Subsidies, and Revenue
- H3 - Fiscal Policies and Behavior of Economic Agents