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Taxing for Takeoff: Estimating Airport Tax Incidence Through Natural Experiments

19 Pages Posted: 17 Apr 2010  

Edward Huang

TripNotice.com; Harvard Kennedy School (HKS), Belfer Center for Science and International Affairs (BCSIA)

Adib Kanafani

University of California, Berkeley - Department of Civil and Environmental Engineering

Date Written: January 14, 2010

Abstract

We view the different start dates of U.S. airport taxes as replicated natural experiments. In each, a portion of plane tickets are subject to a new tax of $3. We show that airlines, in response, raise nonstop fares by $6.5 and overshift the tax onto their nonstop passengers; however, they keep connecting fares little changed and appear burdened by the tax. The results suggest that airport taxes and other similar taxes encourage airlines to provide more nonstop services, and we argue that these taxes can be redesigned to promote both efficiency and equity.

Keywords: Airport Tax, Tax Incidence, Airline Pricing, Aviation Finance

JEL Classification: D43, H22, R48

Suggested Citation

Huang, Edward and Kanafani, Adib, Taxing for Takeoff: Estimating Airport Tax Incidence Through Natural Experiments (January 14, 2010). Available at SSRN: https://ssrn.com/abstract=1591312 or http://dx.doi.org/10.2139/ssrn.1591312

Edward Huang (Contact Author)

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Harvard Kennedy School (HKS), Belfer Center for Science and International Affairs (BCSIA) ( email )

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Adib Kanafani

University of California, Berkeley - Department of Civil and Environmental Engineering ( email )

Berkeley, CA
United States

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