American Economic Journal:
Economic Policy
ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)
The Impact of Including, Adding, and Subtracting a Tax on Demand
American Economic Journal: Economic Policy
vol. 7,
no. 1, February 2015
(pp. 95–118)
Abstract
We test the equivalence of tax-inclusive, tax-exclusive and tax-rebate prices through a series of experiments differing 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 under tax-exclusive prices whereas total purchases under tax-inclusive and tax-rebate prices are similar. These results persist throughout most of the ten rounds despite feedback and the ability to revise purchases. The asymmetric response to tax liabilities and rebates highlights consumers' ability both to internalize and to willfully ignore hidden price components. (JEL D12, H25, H31)Citation
Feldman, Naomi E., and Bradley J. Ruffle. 2015. "The Impact of Including, Adding, and Subtracting a Tax on Demand." American Economic Journal: Economic Policy, 7 (1): 95–118. DOI: 10.1257/pol.20130101Additional Materials
JEL Classification
- D12 Consumer Economics: Empirical Analysis
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
- H31 Fiscal Policies and Behavior of Economic Agents: Household
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