Do Hidden Taxes Increase Welfare?

Abstract:     
This draft offers a critical review of the economic literature on the efficiency of low-salience taxes. In particular, I explore the possibility that hidden taxes may in fact be more efficient than others. Since the entire field comprises only a handful of papers, the review is devoted mostly to identifying gaps in our present understanding. For example, the literature so far omits any consideration of the impact of hidden taxes on fiscal federalism, and gives only glancing attention to possible distributive consequences, both topics I attempt to highlight here. Additionally, I attempt to integrate with the tax literature some recent developments in our understanding of bounded rationality in consumers more generally.

[Note: This is a working paper version of "Hidden Taxes."]

Number of Pages in PDF File: 37

Keywords: optimal taxation, mirrlees, hidden tax, tax salience, bounded rationality, behavioral law and economics, debiasing, Tiebout

working papers series