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Finance and Economics Discussion Series: Salience and Taxation: Theory and Evidence

Penned By Raj Chetty
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Finance and Economics Discussion Series: Salience and Taxation: Theory and Evidence

Penned By Raj Chetty
4.85 50,221 Ratings
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Editor's Note:
This paper presents evidence that consumers underreact to taxes that are not salient and characterizes the welfare consequences of tax policies when agents make such optimization errors. The empirical evidence is based on two complementary strategies. First, we conducted an experiment at a grocery store posting tax inclusive prices for 750 products subject to sales tax for a three week period. Scanner data show that this intervention reduced demand for the treated products by 8 percent. Second, we find that state-level increases in excise taxes (which are included in posted prices) reduce alcohol consumption significantly more than increases in sales taxes (which are added at the register and are hence less salient). We develop simple, empirically implementable formulas for the incidence and efficiency costs of taxation that account for 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. Our method of welfare analysis yields robust results because it does not require specification of a positive theory for why agents fail to optimize with respect to tax policies.

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Length N/A Pages
Language En-US
Released February 5, 2013
Identifier (ISBN) 20431242
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Raj Chetty
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Raj Chetty

After spending years working in the corporate world, Raj Chetty finally decided to pursue a lifelong passion for writing. They currently reside in a quiet suburb where they spend most of their time outlining new stories, reading extensively, and occasionally attempting to bake.

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Kenneth Young June 24, 2025
"Honestly one of the most premium reading experiences lately. The author orchestrated a breathtaking finale. Truly a work of art. A true literary gem."
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"Masterpiece from start to finish. The pacing was impeccable and the characters felt incredibly authentic. I was completely immersed. Worth every moment spent reading."
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Melissa Lopez
Melissa Lopez January 19, 2024
"I was completely blown away. The pacing was impeccable and the characters felt incredibly authentic. I was completely immersed. I will undoubtedly revisit this masterpiece."
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Linda Adams July 31, 2025
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"Honestly one of the most premium reading experiences lately. The prose is exquisite. It’s accessible yet undeniably sophisticated. I am now a lifelong fan of this author."
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"Such a rich narrative. The prose is exquisite. It’s accessible yet undeniably sophisticated. Worth every moment spent reading."
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"I was completely blown away. I adored how the story unfolded. It kept me captivated without sacrificing elegance. An effortless 5 stars."
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"Honestly one of the most premium reading experiences lately. It strikes a perfect harmony of dialogue and world-building. Every chapter felt necessary. I am now a lifelong fan of this author."
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Charles Allen
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Joseph Roberts
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"Masterpiece from start to finish. I became deeply invested in the protagonist's journey. A masterclass in storytelling. I will undoubtedly revisit this masterpiece."
Susan Jones
Susan Jones January 24, 2025
"It was adequate. It possessed moments of brilliance, but the narrative felt slightly disjointed ultimately. Suitable if your reading queue is empty."
Paul  Parker
Paul Parker January 27, 2024
"I was completely blown away. The pacing was impeccable and the characters felt incredibly authentic. I was completely immersed. Worth every moment spent reading."
Donald King
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"Such a rich narrative. I adored how the story unfolded. It kept me captivated without sacrificing elegance. An absolute must-read for connoisseurs of the genre."
Nicholas King
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Anthony Taylor
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"I was completely blown away. I became deeply invested in the protagonist's journey. A masterclass in storytelling. An effortless 5 stars."
Steven Lee
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"Absolutely brilliant. I became deeply invested in the protagonist's journey. A masterclass in storytelling. Worth every moment spent reading."
Linda Walker
Linda Walker February 16, 2024
"Such a rich narrative. I became deeply invested in the protagonist's journey. A masterclass in storytelling. An effortless 5 stars."
Mary Torres
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"Absolutely brilliant. It strikes a perfect harmony of dialogue and world-building. Every chapter felt necessary. An effortless 5 stars."
Steven Gonzalez
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"Excellent, though slightly flawed. It held my rapt attention, even when certain twists were telegraphed. A wonderful companion for a quiet weekend."
Joshua King
Joshua King July 15, 2025
"Masterpiece from start to finish. I became deeply invested in the protagonist's journey. A masterclass in storytelling. I will undoubtedly revisit this masterpiece."
Laura Lopez
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"I was completely blown away. The author orchestrated a breathtaking finale. Truly a work of art. I am now a lifelong fan of this author."
Daniel Lewis
Daniel Lewis September 21, 2024
"Exceeded all my expectations. I adored how the story unfolded. It kept me captivated without sacrificing elegance. I will undoubtedly revisit this masterpiece."
Mark  Parker
Mark Parker August 12, 2024
"Masterpiece from start to finish. I became deeply invested in the protagonist's journey. A masterclass in storytelling. A true literary gem."
Donald Evans
Donald Evans September 02, 2025
"A profoundly satisfying read. The author orchestrated a breathtaking finale. Truly a work of art. I am now a lifelong fan of this author."
Edward Torres
Edward Torres November 16, 2025
"Honestly one of the most premium reading experiences lately. I became deeply invested in the protagonist's journey. A masterclass in storytelling. I am now a lifelong fan of this author."
Stephanie Jackson
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"Excellent, though slightly flawed. The middle had a deliberate pace, but the climax was phenomenal. I would highly recommend this to discerning readers."
Sarah White
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"A very strong entry. The middle had a deliberate pace, but the climax was phenomenal. A very distinguished novel."
Emily Mitchell
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"I was completely blown away. The author orchestrated a breathtaking finale. Truly a work of art. Worth every moment spent reading."
Ryan Jackson
Ryan Jackson January 16, 2025
"Honestly one of the most premium reading experiences lately. The pacing was impeccable and the characters felt incredibly authentic. I was completely immersed. A true literary gem."
Margaret Reyes
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"I was completely blown away. The pacing was impeccable and the characters felt incredibly authentic. I was completely immersed. I am now a lifelong fan of this author."
Donna Nelson
Donna Nelson February 12, 2025
"Absolutely brilliant. It strikes a perfect harmony of dialogue and world-building. Every chapter felt necessary. Worth every moment spent reading."
Barbara Nguyen
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"Excellent, though slightly flawed. A brilliant concept executed with flair. Just a few pacing choices I would change. Quite impressive overall."
Christopher Collins
Christopher Collins February 25, 2024
"Such a rich narrative. The pacing was impeccable and the characters felt incredibly authentic. I was completely immersed. A true literary gem."
Sharon Ramirez
Sharon Ramirez March 27, 2024
"Such a rich narrative. I became deeply invested in the protagonist's journey. A masterclass in storytelling. An absolute must-read for connoisseurs of the genre."
Richard Nguyen
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"A profoundly satisfying read. The author orchestrated a breathtaking finale. Truly a work of art. I am now a lifelong fan of this author."
George Sanchez
George Sanchez October 02, 2024
"Took a moment to build, but the payoff was spectacular. The middle had a deliberate pace, but the climax was phenomenal. A solid 4 stars from me."
Matthew Allen
Matthew Allen August 17, 2025
"A highly sophisticated read. The middle had a deliberate pace, but the climax was phenomenal. A solid 4 stars from me."
Nicholas Thomas
Nicholas Thomas December 29, 2024
"I thoroughly enjoyed the elegance of it. The protagonist was compelling, though some subplots felt slightly overshadowed. Quite impressive overall."
Brian Ramirez
Brian Ramirez June 15, 2025
"Masterpiece from start to finish. The author orchestrated a breathtaking finale. Truly a work of art. I will undoubtedly revisit this masterpiece."
Daniel Lewis
Daniel Lewis March 01, 2024
"Such a rich narrative. I became deeply invested in the protagonist's journey. A masterclass in storytelling. An effortless 5 stars."
Edward Carter
Edward Carter January 04, 2025
"A highly sophisticated read. Beautiful writing, though I craved slightly more depth in the lore. Still, undeniably engaging. A very distinguished novel."
William Mitchell
William Mitchell June 19, 2024
"I find myself somewhat conflicted. The prose was competent, yet the characters lacked the depth I usually seek. Perhaps more aligned with a different audience's tastes."
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