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

Abstract

In simple models of taxation, 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 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 reject the proposition that the point of collection is irrelevant to incidence -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. JEL: H22, H26, H71 Keywords: tax incidence, evasion, diesel fuelThe independence between statutory and economic incidence of a tax is a wellknown and widely accepted result in the theory of taxation. The textbook presentation of the theory of tax incidence holds that the party responsible for remitting the tax to the government has no impact on who actually bears the burden, at least in the long run. Despite its prominent treatment, this result holds only under special circumstances. The primary contribution of this paper is to illustrate a new way in which the independence of economic incidence from the remittance regime may break down. If parties differ in their ability to evade taxes, the identity of the tax remitter may impact the pattern of post-tax prices and therefore the location of their burden. Due to different evasion technologies available to the different sides of a market, a tax levied on the demand side may shift the demand curve to a different degree than a similar tax levied on supply side would shift the supply curve.

Energy Prices, Pass-Through, and Incidence in U.S. Manufacturing

“…A separate but related literature at the intersection of public finance and industrial organization uses microdata to analyze the pass-through of gasoline taxes into retail gasoline or diesel prices (Doyle and Samphantharak, 2008;Marion and Muehlegger, 2011;Kopczuk, Mario, Muehlegger, and Slemrod, 2016) or European Union Emissions Trading System (ETS) allowance prices to electricity wholesale prices (Fabra and Reguant, 2014). These analyses typically account for only one productive input (e.g., coal prices) which makes the methodology difficult to generalize to most manufacturing industries which use multiple factors of production and hence where marginal costs are more difficult to observe.…”

Estimating Both Supply and Demand Elasticities Using Variation in a Single Tax Rate

“…1 Earlier empirical tests for whether the RER holds in the context of tax salience, and tax avoidance, have been developed in, respectively, Chetty, Looney, and Kroft (2009) and Kopczuk et al (2016). …”

“…If there is indeed no simultaneity, reduced-form and structural coefficients are equivalent. To our knowledge, all papers in the sufficient statistics literature that do allow for simultaneity either assume the RER holds (Hendren (2016)), or require at least two instruments for welfare analysis (Chetty, Looney, andKroft (2009), Saez, Matsaganis, andTsakloglou (2012), Kopczuk et al (2016)). Therefore, it appears to be the RER, rather than the approach to welfare analysis, that determines how many instruments are required.…”

O custo financeiro dos tributos sobre consumo nas cadeias de suprimento brasileiras: uma proposta metodológica

“…Em uma investigação sobre sonegação nessa cadeia produtiva, Kopczuk et al (2016) verificaram que preços do diesel no varejo são maiores e que os tributos incidentes sobre esse produto são repassados ao preço no varejo em maior magnitude nos estados em que a coleta está no fornecedor primário, sugerindo que esse novo regime de coleta reduziu a sonegação.…”