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Do the Laws of Tax Incidence Hold? Point of Collection and the Pass-through of State Diesel Taxes

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Listed:
  • Wojciech Kopczuk
  • Justin Marion
  • Erich Muehlegger
  • Joel Slemrod

Abstract

The canonical theory of taxation holds that the incidence of a tax is independent of the side of the market which is responsible for remitting the tax to the government. However, this prediction does not survive in certain circumstances, for example when the ability to evade taxes differs across economic agents. In this paper, we estimate in the context of state diesel fuel taxes how the incidence of a quantity tax depends on the point of tax collection, where the level of the supply chain responsible for remitting the tax varies across states and over time. Our results indicate that moving the point of tax collection from the retail station to higher in the supply chain substantially raises the pass-through of diesel taxes to the retail price. Furthermore, tax revenues respond positively to collecting taxes from the distributor or prime supplier rather than from the retailer, suggesting that evasion is the likely explanation for the incidence result.

Suggested Citation

  • Wojciech Kopczuk & Justin Marion & Erich Muehlegger & Joel Slemrod, 2013. "Do the Laws of Tax Incidence Hold? Point of Collection and the Pass-through of State Diesel Taxes," NBER Working Papers 19410, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:19410
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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