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Utilizing the Consumer Expenditure Survey and state-level variation in taxes, this study finds that prices for most models of new cars shift by more than the amount of a sales tax. The evidence of an overshifting of prices offers support for the recent models of tax incidence in imperfectly competitive markets. The results also suggest that changes in the after-tax interest rate have offsetting effects on new car prices; a one percentage point increase in the after-tax real interest rate will prompt, on average, a mark-down of $106.

In this paper, we provide new evidence regarding the pass-through of diesel and gasoline taxes to prices, and how the estimated pass-through depends on a variety of supply conditions including a measure of state residual supply elasticity, and refinery and inventory constraints. In addition, we estimate the response of tax incidence to gasoline content regulations, which complicate the supply chain by increasing product heterogeneity. We find that state gasoline and diesel taxes are on average fully passed on to consumers. We also find that the pass-through of diesel taxes is greater in settings where untaxed uses of diesel are more important, which corresponds to times when residual supply is more elastic. We find that only half of the state diesel tax is passed on to consumers when U.S. refinery capacity utilization is above 95 percent. Gasoline taxes, on the other hand, are fully passed through regardless of season or capacity utilization, indicating that a gas tax holiday would provide price relief to consumers. We find that regional gasoline content regulations affect pass-through – we estimate tax pass-through is 22 percentage points lower in a state using two blends of gasoline than a state using one blend of gasoline. The authors thank Erzo Luttmer, Raj Chetty, Monica Singhal, and seminar participants at UC Berkeley, Northeastern,

valuable suggestions. We are also grateful to anonymous referees and Editor Ken Hendricks for helpful comments. Cost Pass-Through in Differentiated Product Markets: The Case of U.S. Processed Cheese In this paper, we estimate a mixed logit model for demand in the U.S. processed cheese market. The estimates are used to determine pass-through rates of cost changes under different behavioral regimes. We find that, under collusion, the pass-through rates for all brands fall between 21 % and 31 % while, under Bertrand-Nash price competition, the range of pass-through rates are between 73 % and 103%. The mixed logit model provides a more flexible framework for studying pass-through rates than the logit model since the curvature of the demand functions depends upon the empirical distribution of consumer types.

This paper studies non-cooperative commodity taxation in a trade model with imperfect competition and trade costs. Nationally optimal tax policy simultaneously tries to correct the domestic distortion from imperfect competition and to shift rents to the home country. Importantly, this trade-off depends qualitatively on the inter- national commodity tax regime in operation. For low levels of trade costs, we show that production-based commodity taxes dominate from a global welfare perspective, but this ranking is reversed in favor of consumption-based taxation when trade costs become sufficiently high.

This paper derives measures of the average and marginal incidence of a tax or subsidy in imperfect competition, in the context of the UK housing market. We argue that one form of mortgage, common in the UK but not elsewhere (the endowment mortgage), exists primarily because of the structure of taxation in the UK. We estimate the determinants of the choice of the type of mortgage, and the size of mortgage conditional on the choice, using data from the Building Societies Association on 43,000 individual mortgages taken out between 1985 and 1989. The estimated parameters are an input to the incidence measures. Results suggest that between 70% and 80% of the additional subsidy to endowment mortgages is captured by lenders, rather than borrowers.

The traditional view that a high sales tax rate reduces trade by driving a wedge between the purchase and sale price may not apply to internet commerce for two reasons. The first reason is that the sales tax paid by buyers purchasing via the internet is determined by the tax rate in the region of the buyer. The second reason is that a high sales tax may lower the before-tax price if sellers absorb part of the tax. Taken together, this implies that internet distributors may profitably target customers in regions with low tax rates by locating their selling addresses in high tax regions. Consequently the optimal marketing strategy for a global internet distributor may include siting selling locations in regions with high tax rates in order to target customers in regions with low tax rates. An empirical analysis of the European car market suggests that this is more than a remote theoretical possibility by demonstrating that the before-tax prices recommended by manufacturers for new cars are lower in high tax countries.

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International economics has overwhelmingly relied on Samuelson’s (1954) assumption that trade costs are proportional to value. We build a general equilibrium heterogeneous …rms model of trade that allows for both ad valorem and per-unit costs. Using a novel minimum distance estimator we identify per-unit trade costs from the distribution of foreign sales across …rms within markets. Estimated average per-unit costs are substantial being, on average, between 35 and 45 percent of the average consumer price. This leads us to reject the pure ad valorem cost assumption. An important theoretical …nding is that a per-unit import barrier is more harmful than an equal yield ad valorem barrier, since per-unit barriers distort relative prices both across and within markets. Since a non-negligible share of existing trade barriers are per-unit, standard welfare assessments of trade liberalization may be understated.