Hidden Baggage: Behavioral Responses to Changes in Airline Ticket Tax Disclosure

Abstract

We examine the impact of a January 2012 enforcement action by the U.S. Department of Transportation that required U.S. air carriers and online travel agents to modify their web interfaces to incorporate all ticket taxes in upfront, advertised fares. We show that the more prominent display of tax-inclusive prices is associated with significant reductions in consumer tax incidence, demand, and ticket revenues along more heavily-taxed itineraries. In particular, the fraction of unit taxes that airlines passed onto consumers fell by roughly 75 cents for every dollar of tax. These results reinforce prior findings on consumer inattention in a novel institutional setting featuring quasi-experimental variation in tax salience, economically-significant tax amounts, and endogenous price responses.

Keywords: tax salience, airlines, ticket taxes, tax incidence