UM Professor Joel Slemrod Published in the American Economic Journal: Economic Policy
“The question is an important one for taxation--whether, for a given tax, who has to actually fork over the money to the government matters,” explains UM professor Joel Slemrod on a recent paper he co-authored entitled, "Does Tax-Collection Invariance Hold? Evasion and the Pass-Through of State Diesel Taxes." Joel collaborated with Wojciech Kopczuk (Professor of Economics and of International and Public Affairs, Columbia University), Justin Marion (Associate Professor of Economics, University of California Santa Cruz), and Erich Muehlegger (Assistant Professor of Economics, University of California Davis) for the paper featured in the May 2016 edition of the American Economic Journal: Economic Policy.
In economics’ textbooks, there is something that Joel refers to as a “folk theorem, meaning a theorem that people think is true but is never rigorously proven. In this case it implies that it doesn’t matter who has to remit the tax liability—for example, the retailer or the consumer under a retail sales tax--that the impact, including who ultimately bears the tax burden, will be the same. This is often true but not always. This paper is perhaps the first empirical demonstration of a setting where the folk theorem fails.” The authors found that depending on who has to remit the tax liability, the evasion possibilities are different or the cost of administering the tax system is different.
They looked at the case of state-level diesel fuel taxes, and examined who bears the burden of this tax and how much evasion there is. “It is a good context to study this issue because over the past decades, states have changed the point of collection, which is just the other side of the coin from the point of remittance. A state can collect diesel fuel tax at the refiner level, distributor, wholesaler, retailer, and in principle the consumer, although that never happens,” explains Joel. The authors used these state-level changes and found evidence consistent with the level of evasion depending on where the money is collected. As you move collection upstream, away from the retailer and toward the terminal, evasion seems to go down.
Read the entire paper here!
Learn more about Joel and his work here!