Inferring Tax Compliance from Pass-Through: Evidence from Airbnb Tax Enforcement Agreements

McMaster University - Department of Economics Working Paper No. 2018-06

56 Pages Posted: 14 Feb 2018 Last revised: 18 Jul 2018

See all articles by Andrew Bibler

Andrew Bibler

University of Alaska Anchorage, Institute of Social and Economic Research; University of Alaska Anchorage - Department of Economics

Keith Teltser

Georgia State University

Mark J. Tremblay

Miami University

Multiple version iconThere are 3 versions of this paper

Date Written: July 5, 2018

Abstract

Tax enforcement can be prohibitively costly when market transactions and participants are difficult to observe. Evasion among market participants may reduce tax revenue and provide certain types of suppliers an undue competitive advantage. Whether efforts to fully enforce taxes are worthwhile depends on the rate of compliance in the absence of such efforts. In this paper, we show that an upper bound on pre-enforcement tax compliance can be obtained using market data on pre- and post-enforcement periods. To do this, we estimate the pass-through of tax enforcement agreements between Airbnb and state and local governments, which achieve full compliance at the point of sale. Using data on Airbnb listings across a number of U.S. metropolitan areas, as well as variation in enforcement agreements across time, location, and tax rate, we estimate that taxes are paid on no more than 24 percent of Airbnb transactions prior to enforcement. We also find that demand is inelastic, which drives several key insights: the economic burden of taxation disproportionately falls on renters, excess burden is very small, and tax enforcement is not an effective policy lever for interest groups seeking to reduce local Airbnb activity.

Keywords: evasion, short-term housing rentals, sharing economy, voluntary collection agreements, online sales and use taxes

JEL Classification: H20, H22, H26, L10

Suggested Citation

Bibler, Andrew and Teltser, Keith and Tremblay, Mark, Inferring Tax Compliance from Pass-Through: Evidence from Airbnb Tax Enforcement Agreements (July 5, 2018). McMaster University - Department of Economics Working Paper No. 2018-06 . Available at SSRN: https://ssrn.com/abstract=3117021 or http://dx.doi.org/10.2139/ssrn.3117021

Andrew Bibler (Contact Author)

University of Alaska Anchorage, Institute of Social and Economic Research ( email )

3211 Providence Dr, BOC 3-301
Anchorage, AK 99508
United States

University of Alaska Anchorage - Department of Economics ( email )

United States

Keith Teltser

Georgia State University ( email )

P.O. Box 3992
Atlanta, GA 30302-3992
United States

HOME PAGE: http://sites.google.com/site/kteltser

Mark Tremblay

Miami University ( email )

208 Laws Hall
Oxford, OH 45056
United States

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