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The Power to Pass on Taxes - A Test for Tax Shifting based on Observables

Mario Jametti (), Agustin Redonda () and Anindya Sen ()

Quaderni della facoltà di Scienze economiche dell'Università di Lugano from USI Università della Svizzera italiana

Abstract: Since gasoline has a relatively inelastic demand, raising government revenue via gasoline taxes could appear appropriate as it entails a relatively small deadweight loss. However, gasoline retail is generally a highly concentrated market, hence the assumption of perfect competition when considering tax incidence might be misleading. Theoretically, in oligopolistic markets taxes can be shifted forward less (more) than proportionally to retail prices; a possibility usually denoted by undershifting (overshifting). Generally, this depends on unobservable parameters of the demand and cost functions. In this paper we device a novel empirical test, based on observables, to assess whether taxes are under- or overshifted in an oligopolistic market. The test depends on the interaction between market structure and taxes. We apply our test to the Canadian retail gasoline market using a panel data set of 10 cities, finding that gasoline taxes are undershifted.

Keywords: Tax Incidence; Pass-through; Market Structure (search for similar items in EconPapers)
JEL-codes: H22 D43 L13 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2013
New Economics Papers: this item is included in nep-ene, nep-pbe and nep-pub
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Citations: View citations in EconPapers (4) Track citations by RSS feed

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Persistent link: https://EconPapers.repec.org/RePEc:lug:wpaper:1301

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