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Salience and taxation: salience effect versus information effect

Author

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  • Yuqing Zheng
  • Edward W. McLaughlin
  • Harry M. Kaiser

Abstract

Posting tax-inclusive price tags on grocery products can reduce demand through an information effect that corrects consumers who misperceive the actual tax status. We disentangle the information effect from the salience effect developed by Chetty, Looney and Kroft (2009, CLK for short). By utilizing CLK's survey finding that 20% of shoppers mistakenly think there is no sales tax on toothpaste, we show that the information effect actually explains 31% of the sales drop in CLK's field study. Therefore, ignoring the information effect may overestimate the salience effect by a large degree.

Suggested Citation

  • Yuqing Zheng & Edward W. McLaughlin & Harry M. Kaiser, 2013. "Salience and taxation: salience effect versus information effect," Applied Economics Letters, Taylor & Francis Journals, vol. 20(5), pages 508-510, March.
    • Handle: RePEc:taf:apeclt:v:20:y:2013:i:5:p:508-510
    DOI: 10.1080/13504851.2012.718050
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    Cited by:

    1. Lehr Brandon, 2016. "Information and Inflation: An Analysis of Grading Behavior," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(2), pages 755-783, April.
    2. Nathalie Mathieu-Bolh, 2021. "Hand-to-mouth Consumption and Calorie Consciousness: Consequences for Junk-food Taxation," Public Finance Review, , vol. 49(2), pages 167-220, March.

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