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The Impact of Tax Exclusive and Inclusive Prices on Demand

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Listed:
  • Bradley J. Ruffle

    (BGU)

  • Naomi E. Feldman

    (Research Division Federal Reserve Board Washington, D.C.)

Abstract

We test the equivalence of tax-inclusive and tax-exclusive prices through a series of experiments that differ only in their handling of the tax. Subjects receive a cash budget and decide how much to keep and how much to spend on various attractively priced goods. Subjects spend significantly more when faced with tax-exclusive prices. This treatment effect is robust to different price levels, to initial shopping-cart purchases and persists throughout most of the ten rounds. A goods-level analysis, intra-round revisions as well as results from a third tax-deduction treatment all cast doubt on salience as the source of our findings.

Suggested Citation

  • Bradley J. Ruffle & Naomi E. Feldman, 2013. "The Impact of Tax Exclusive and Inclusive Prices on Demand," Working Papers 1302, Ben-Gurion University of the Negev, Department of Economics.
    • Handle: RePEc:bgu:wpaper:1302
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    References listed on IDEAS

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    Cited by:

    1. Johannes Abeler & Simon Jäger, 2013. "Complex Tax Incentives - An Experimental Investigation," CESifo Working Paper Series 4231, CESifo.
    2. Richard M. Bird, 2014. "Foreign advice and tax policy in developing countries," Chapters, in: Richard M. Bird & Jorge Martinez-Vazquez (ed.), Taxation and Development: The Weakest Link?, chapter 4, pages 103-144, Edward Elgar Publishing.
    3. Rebecca K Scott, 2014. "Tax Salience vs. Price Uncertainty: Disentangling the Effects of Attention and Rational Habits," Economics Series Working Papers 736, University of Oxford, Department of Economics.
    4. Tomer Blumkin & Haim Pinhas & Ro'i Zultan, 2017. "Leveraging Wage Subsidies to Facilitate Fair Wages and Increase Social Welfare," CESifo Working Paper Series 6597, CESifo.
    5. Ackermann, Hagen & Fochmann, Martin, 2014. "The effect of straight-line and accelerated depreciation rules on risky investment decisions: An experimental study," arqus Discussion Papers in Quantitative Tax Research 158, arqus - Arbeitskreis Quantitative Steuerlehre.
    6. Johannes Becker & Jonas Fooken & Melanie Steinhoff, 2019. "Behavioral Effects of Withholding Taxes on Labor Supply," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(4), pages 1417-1440, October.
    7. Hagen Ackermann & Martin Fochmann & Nadja Wolf, 2016. "The Effect of Straight-Line and Accelerated Depreciation Rules on Risky Investment Decisions—An Experimental Study," IJFS, MDPI, vol. 4(4), pages 1-26, October.
    8. Fochmann, Martin & Hemmerich, Kristina, 2014. "Real tax effects and tax perception effects in decisions on asset allocation," arqus Discussion Papers in Quantitative Tax Research 156, arqus - Arbeitskreis Quantitative Steuerlehre.
    9. Andrew T. Hayashi & Brent K. Nakamura & David Gamage, 2013. "Experimental Evidence of Tax Salience and the Labor–Leisure Decision," Public Finance Review, , vol. 41(2), pages 203-226, March.

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    More about this item

    Keywords

    experimental economics; sales tax; VAT; tax salience;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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