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

NBER Working Paper No. 19410
Issued in September 2013
NBER Program(s):Environment and Energy Economics, Public Economics

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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Document Object Identifier (DOI): 10.3386/w19410

"Does Tax-Collection Invariance Hold? Evasion and the Pass-through of State Diesel Taxes" (with Justin Marion, Erich Muehlegger and Joel Slemrod), American Economic Journal: Economic Policy, forthcoming.

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