TY  - JOUR
AU  - Chetty,Raj
TI  - The Simple Economics of Salience and Taxation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15246
PY  - 2009
Y2  - August 2009
UR  - http://www.nber.org/papers/w15246
L1  - http://www.nber.org/papers/w15246.pdf
N1  - Author contact info:
Raj Chetty
Department of Economics
Harvard University
1805 Cambridge St.
Cambridge, MA 02138
Tel: 617-744-9492
E-Mail: chetty@fas.harvard.edu
AB  - This paper derives empirically implementable formulas for the incidence and efficiency costs of taxation that account for tax salience effects as well as other optimization errors. Contrary to conventional wisdom, the formulas imply that the economic incidence of a tax depends on its statutory incidence and that a tax can create deadweight loss even if it induces no change in demand.  The results are derived using simple supply and demand diagrams and familiar notions of consumer and producer surplus. The approach to welfare analysis proposed here yields robust formulas because it does not require specification of a positive theory for why agents fail to optimize with respect to tax policies.
ER  -