Visibility and Accountability: Is Tax-Inclusive Pricing a Good Thing?

Abstract

This paper considers a simple question: does it make a difference if people can see a tax? Underlying this question are some serious methodological and political issues that are as yet largely unexplored concerning both the relationship between tax economics and tax policy and the connection between tax politics and the functioning of democracy in a complex modern society. This brief consideration of the pros and cons of changing the way in which the general sales tax (the GST/HST) is presently treated in Canada raises, but does not resolve, many of these issues. Nonetheless, since hiding the tax bill does not seem a particularly attractive way to build a sustainable democratic consensus in support of fiscal equilibrium, the paper concludes that there is much to be said for continuing the current general practice in North America of quoting the sales tax separately (tax-exclusive pricing) rather than moving to the tax-inclusive pricing found in most VATs around the world.

Keywords: tax visibility, tax-exclusive pricing, tax-inclusive pricing, sales tax

JEL Classification: H20