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Does Tax-Collection Invariance Hold? Evasion and the Pass-Through of State Diesel Taxes

Author

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

Abstract

In simple models, the incidence of a tax is independent of the identity of the remitting party. We illustrate that this prediction fails to hold if opportunities for evasion differ across economic agents. Second, we estimate how the incidence of state diesel taxes varies with the point of collection, where the remitting party varies across states and over time. Moving tax collection upstream from retailers substantially raises the pass-through of diesel taxes to consumers. Furthermore, tax revenues increase when collecting taxes from wholesalers rather than from retailers, suggesting that evasion is the likely explanation for the incidence result. (JEL H22, H25, H26, H71, L71)

Suggested Citation

  • Wojciech Kopczuk & Justin Marion & Erich Muehlegger & Joel Slemrod, 2016. "Does Tax-Collection Invariance Hold? Evasion and the Pass-Through of State Diesel Taxes," American Economic Journal: Economic Policy, American Economic Association, vol. 8(2), pages 251-286, May.
    • Handle: RePEc:aea:aejpol:v:8:y:2016:i:2:p:251-86
    Note: DOI: 10.1257/pol.20140271
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    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • 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
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels

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