THE IMPACT OF TAX EXCLUSIVE AND INCLUSIVE PRICES ON DEMAND

Naomi Feldman and Bradley Ruffle

No 1207, Working Papers from Ben-Gurion University of the Negev, Department of Economics

Abstract: We test the equivalence of tax-inclusive and tax-exclusive prices through a series of experiments that differ only in their handling of the tax. Subjects receive a cash budget and decide how much to keep and how much to spend on various attractively priced goods. Subjects spend significantly more when faced with tax-exclusive prices. This treatment effect is robust to different price levels, to initial shopping-cart purchases and persists throughout most of the ten rounds. A goods-level analysis, intra-round revisions as well as results from a third tax-deduction treatment all cast doubt on salience as the source of our findings.

Keywords: experimental economics; sales tax; VAT; tax salience. (search for similar items in EconPapers)
JEL-codes: C91 H20 H31 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2012
New Economics Papers: this item is included in nep-exp and nep-pbe
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Citations: View citations in EconPapers (9)

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Related works:
Working Paper: The Impact of Tax Exclusive and Inclusive Prices on Demand (2013)
Working Paper: The impact of tax exclusive and inclusive prices on demand (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:bgu:wpaper:1207

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