E-ZTAX: Tax Salience and Tax Rates

Amy Finkelstein
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Amy Finkelstein: Massachusetts Institute of Technology and NBER.

The Quarterly Journal of Economics, 2009, vol. 124, issue 3, pages 969-1010

Abstract: This paper examines whether the salience of a tax system affects equilibrium tax rates. I analyze how tolls change after toll facilities adopt electronic toll collection (ETC); drivers are substantially less aware of tolls paid electronically. I estimate that, in steady state, tolls are 20 to 40 percent higher than they would have been without ETC. Consistent with a salience-based explanation for this toll increase, I find that under ETC, driving becomes less elastic with respect to the toll and toll setting becomes less sensitive to the electoral calendar. Alternative explanations appear unlikely to be able to explain the findings. (c) 2009 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology..

Date: 2009

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