Salience and Taxation with Imperfect Competition (WP-20-29)
Kory Kroft, Jean-William Laliberté, René Leal Vizcaíno, and Matthew Notowidigdo
This paper studies commodity taxation in a general model featuring imperfect competition and tax salience. The researchers derive new formulas for the incidence and marginal excess burden of commodity taxation, and they estimate the necessary inputs to the formulas by combining Nielsen Retail Scanner data from grocery stores in the US with detailed sales tax data. They calibrate our new formulas and conclude that the incidence of sales taxes on consumers is increasing in tax salience, and the marginal excess burden of taxation is larger than standard formulas that ignore imperfect competition and tax salience.