Do the Laws of Tax Incidence Hold? Point of Collection and the Pass-Through of State Diesel Taxes

40 Pages Posted: 6 Sep 2013 Last revised: 19 Aug 2014

See all articles by Wojciech Kopczuk

Wojciech Kopczuk

Columbia University - Graduate School of Arts and Sciences - Department of Economics; Columbia University - School of International & Public Affairs (SIPA); National Bureau of Economic Research (NBER)

Justin G. Marion

University of California, Santa Cruz - Division of Social Sciences

Erich Muehlegger

University of California, Davis - Department of Economics

Erich Muehlegger

Harvard University

Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research (NBER)

Date Written: September 2013

Abstract

The canonical theory of taxation holds that the incidence of a tax is independent of the side of the market which is responsible for remitting the tax to the government. However, this prediction does not survive in certain circumstances, for example when the ability to evade taxes differs across economic agents. In this paper, we estimate in the context of state diesel fuel taxes how the incidence of a quantity tax depends on the point of tax collection, where the level of the supply chain responsible for remitting the tax varies across states and over time. Our results indicate that moving the point of tax collection from the retail station to higher in the supply chain substantially raises the pass-through of diesel taxes to the retail price. Furthermore, tax revenues respond positively to collecting taxes from the distributor or prime supplier rather than from the retailer, suggesting that evasion is the likely explanation for the incidence result.

Suggested Citation

Kopczuk, Wojciech and Marion, Justin G. and Muehlegger, Erich and Muehlegger, Erich and Slemrod, Joel B., Do the Laws of Tax Incidence Hold? Point of Collection and the Pass-Through of State Diesel Taxes (September 2013). NBER Working Paper No. w19410. Available at SSRN: https://ssrn.com/abstract=2321461

Wojciech Kopczuk (Contact Author)

Columbia University - Graduate School of Arts and Sciences - Department of Economics ( email )

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Columbia University - School of International & Public Affairs (SIPA)

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National Bureau of Economic Research (NBER) ( email )

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Justin G. Marion

University of California, Santa Cruz - Division of Social Sciences ( email )

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Erich Muehlegger

University of California, Davis - Department of Economics ( email )

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Erich Muehlegger

Harvard University ( email )

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Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business ( email )

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734-936-3914 (Phone)
734-763-4032 (Fax)

National Bureau of Economic Research (NBER)

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