Salience and Taxation with Imperfect Competition

50 Pages Posted: 27 Apr 2021 Last revised: 11 Aug 2022

See all articles by Kory Kroft

Kory Kroft

University of Toronto

Jean-William Laliberté

University of Calgary - Department of Economics

René Leal Vizcaíno

Northwestern University, Department of Economics; Banco de Mexico

Matthew Notowidigdo

University of Chicago - Booth School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: April 2022

Abstract

This paper studies commodity taxation in a model featuring heterogeneous consumers, imperfect competition, and tax salience. We derive new formulas for the incidence and marginal excess burden of commodity taxation, and we find that tax salience and market structure interact when considering tax incidence and the marginal excess burden. We estimate the necessary inputs to the formulas by combining Nielsen Retail Scanner data from grocery stores in the US with detailed sales tax data. We calibrate our new formulas and conclude that essentially all of the incidence of sales taxes falls on consumers, and the marginal excess burden of taxation is larger than estimates based on standard formulas that ignore imperfect competition and tax salience.

Keywords: tax salience, imperfect competition, sales taxes, scanner data

JEL Classification: D12, H2, H25, H71

Suggested Citation

Kroft, Kory and P. Laliberté, Jean-William and Leal Vizcaíno, René and Notowidigdo, Matthew, Salience and Taxation with Imperfect Competition (April 2022). Available at SSRN: https://ssrn.com/abstract=3834681 or http://dx.doi.org/10.2139/ssrn.3834681

Kory Kroft

University of Toronto ( email )

Toronto, Ontario M5S 3G8
Canada

Jean-William P. Laliberté

University of Calgary - Department of Economics ( email )

2500 University Dr. N.W.
Calgary, Albetra T2N 1N4
Canada

René Leal Vizcaíno

Northwestern University, Department of Economics ( email )

Evanston, IL
United States

Banco de Mexico ( email )

Ave Cinco e Mayo 1
Col. Centro
Mexico City, Mexico DF 06059
Mexico

Matthew Notowidigdo (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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