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

Sebastien Bradley and Naomi Feldman

No 2018-057, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We examine the impact on air travelers of an enforcement action issued by the U.S. Department of Transportation in January 2012 that required U.S. air carriers and online travel agents to incorporate all mandatory taxes and fees into their advertised fares. Exploiting cross-itinerary ticket tax variation within international city market pairs, we provide evidence that the more prominent display of tax-inclusive prices is associated with a significant reduction in tax incidence on consumers and a decline in passenger volume along more heavily-taxed itineraries. Ticket revenues are commensurately reduced. These results suggest a pronounced degree of inattention to ticket taxes prior to the introduction of full-fare advertising and reinforces the theoretical predictions and experimental findings of the literature on tax salience in a quasi-experimental context where taxes average more than $100 per ticket and where firms may engage in price-setting behavior.

Keywords: Tax salience; Airlines; Ticket taxes; Tax incidence (search for similar items in EconPapers)
JEL-codes: D18 D90 H22 H31 L5 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2018-08-14
New Economics Papers: this item is included in nep-mkt, nep-pbe, nep-pub and nep-tre
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://www.federalreserve.gov/econres/feds/files/2018057pap.pdf (application/pdf)

Related works:
Journal Article: Hidden Baggage: Behavioral Responses to Changes in Airline Ticket Tax Disclosure (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2018-57

DOI: 10.17016/FEDS.2018.057

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