EZ-Tax: Tax Salience and Tax Rates

By Amy N. Finkelstein. 2009

650 citations recorded by the source corpus.

This paper tests the hypothesis that the salience of a tax system affects equilibrium tax rates. To do this, I analyze how toll rates change after toll facilities adopt electronic toll collection. Unlike manual toll collection, in which the driver must hand over cash at the toll collection plaza, electronic toll collection automatically debits the toll amount as the car drives through the toll plaza, thereby plausibly decreasing the salience of the toll. I find robust evidence that toll rates increase following the adoption of electronic toll collection. My estimates suggest that, in steady state, toll rates are 20 to 40 percent higher than they would have been without electronic toll collection. Consistent with the hypothesis that decreased tax salience is responsible for the increase in toll rates, I also find evidence that the short run elasticity of driving with respect to the actual toll declines (in absolute value) following the adoption of electronic toll collection. I consider a variety of alternative explanations for these results and conclude that these are unlikely to be able to explain the findings.

Subfields: Economics and Econometrics, Political Science and International Relations

View Paper: https://www.semanticscholar.org/paper/b7f7dd591a35b445455596e21e28764cbb9580c7

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Citations in the corpus

Regulating Consumer Financial Products: Evidence from Credit Cards* (2015, neutral): “…balances; the daily interest rate, defined as the annual 7Our research is also more broadly related to research on price salience for economic decision-making and welfare (Chetty, Looney and Kroft, 2009; Finkelstein, 2009; Bernheim and Rangel, 2012; Bordalo, Gennaioli and Shleifer, 2012a,b).”
Putting nudges in perspective (2017, background): “Focusing on the type of intervention, the impact of traditional economic interventions, such as taxes and subsidies, can be enhanced by carefully framing them in ways that magnify their impact (e.g. see McCaffery & Baron, 2006; Finkelstein, 2009).”
Salience of Carbon Taxes in the Gasoline Market (2015, positive): “Although in a different context, our results also complement Finkelstein (2009) and Chetty, Looney and Kroft (2009) who suggest that consumers exhibit more elastic demand response if prices increase due to a highly visible tax than if prices increase for some other reason.”
Psychological Frictions and the Incomplete Take-Up of Social Benefits: Evidence from an IRS Field Experiment (2015, background): “…(e.g., Chetty and Saez 2013; Liebman and Luttmer 2015; Karlan et al. 2015), as well as its salience (e.g., Chetty, Looney, and Kroft 2009; Finkelstein 2009) and complexity (Hastings and Weinstein 2008; Bettinger et al. 2012; Kling et al. 2012; Bhargava, Loewenstein, and Sydnor 2015)…”
Born on the First of July: An (Un)Natural Experiment in Birth Timing (2009, background): “23 Related to this issue is Finkelstein (2007), who demonstrates that the salience of tax payments rather than just their magnitude impacts on behavior in the acceptance of toll payment increases.”