Preprint

The power to pass on taxes : a test for tax shifting based on observables

  • Jametti, Mario Istituto di economia politica (IdEP), Facoltà di scienze economiche, Università della Svizzera italiana, Svizzera
  • Redonda, Augustin Istituto di economia politica (IdEP), Facoltà di scienze economiche, Università della Svizzera italiana, Svizzera
  • Sen, Anindya University of Waterloo, Canada
    16.05.2013

41 p.

English Since gasoline has a relatively inelastic demand, raising government revenue via gasoline taxes could appear appropriate as it entails a relatively small deadweight loss. However, gasoline retail is generally a highly concentrated market, hence the assumption of perfect competition when considering tax incidence might be misleading. Theoretically, in oligopolistic markets taxes can be shifted forward less (more) than proportionally to retail prices; a possibility usually denoted by undershifting (overshifting). Generally, this depends on unobservable parameters of the demand and cost functions. In this paper we device a novel empirical test, based on observables, to assess whether taxes are under- or overshifted in an oligopolistic market. The test depends on the interaction between market structure and taxes. We apply our test to the Canadian retail gasoline market using a panel data set of 10 cities, finding that gasoline taxes are undershifted.
Language
  • English
Classification
Economics
License
License undefined
Identifiers
  • RERO DOC 32089
  • ARK ark:/12658/srd1318517
Persistent URL
https://n2t.net/ark:/12658/srd1318517
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