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

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

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19410.

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Date of creation: Sep 2013
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Handle: RePEc:nbr:nberwo:19410
Note: EEE PE
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  1. Justin Marion & Erich Muehlegger, 2008. "Measuring Illegal Activity and the Effects of Regulatory Innovation: Tax Evasion and the Dyeing of Untaxed Diesel," Journal of Political Economy, University of Chicago Press, vol. 116(4), pages 633-666, 08.
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