Economics at your fingertips  

Salience and Taxation: Theory and Evidence

Raj Chetty (), W. Looney and Kory Kroft

American Economic Review, 2009, vol. 99, issue 4, 1145-77

Abstract: Using two strategies, we show that consumers underreact to taxes that are not salient. First, using a field experiment in a grocery store, we find that posting tax-inclusive price tags reduces demand by 8 percent. Second, increases in taxes included in posted prices reduce alcohol consumption more than increases in taxes applied at the register. We develop a theoretical framework for applied welfare analysis that accommodates salience effects and other optimization failures. The simple formulas we derive imply that the economic incidence of a tax depends on its statutory incidence, and that even policies that induce no change in behavior can create efficiency losses. (JEL C93, D12, H25, H71)

JEL-codes: C93 D12 H25 H71 (search for similar items in EconPapers)
Date: 2009
Note: DOI: 10.1257/aer.99.4.1145
References: Add references at CitEc
Citations: View citations in EconPapers (569) Track citations by RSS feed

Downloads: (external link) (application/pdf) (application/zip) (application/pdf)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
Working Paper: Salience and taxation: theory and evidence (2009) Downloads
Working Paper: Salience and Taxation: Theory and Evidence (2009) Downloads
Working Paper: Salience and Taxation: Theory and Evidence (2007) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from

Access Statistics for this article

American Economic Review is currently edited by Esther Duflo

More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().

Page updated 2019-04-08
Handle: RePEc:aea:aecrev:v:99:y:2009:i:4:p:1145-77