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E-ZTAX: Tax Salience and Tax Rates

  • Amy Finkelstein

    (Massachusetts Institute of Technology and NBER.)

This paper examines whether the salience of a tax system affects equilibrium tax rates. I analyze how tolls change after toll facilities adopt electronic toll collection (ETC); drivers are substantially less aware of tolls paid electronically. I estimate that, in steady state, tolls are 20 to 40 percent higher than they would have been without ETC. Consistent with a salience-based explanation for this toll increase, I find that under ETC, driving becomes less elastic with respect to the toll and toll setting becomes less sensitive to the electoral calendar. Alternative explanations appear unlikely to be able to explain the findings. (c) 2009 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology..

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File URL: http://www.mitpressjournals.org/doi/pdfplus/10.1162/qjec.2009.124.3.969
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Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 124 (2009)
Issue (Month): 3 (August)
Pages: 969-1010

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Handle: RePEc:tpr:qjecon:v:124:y:2009:i:3:p:969-1010
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  12. Christopher Timmins, 2002. "Measuring the Dynamic Efficiency Costs of Regulators' Preferences: Municipal Water Utilities in the Arid West," Econometrica, Econometric Society, vol. 70(2), pages 603-629, March.
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