This paper conducts an incidence analysis of the value-added tax (VAT) in high-informality countries. While consumption taxes have traditionally been considered regressive, recent research suggests they might be progressive under specific assumptions regarding pass-through of taxes to prices and household shopping behavior. We use high-frequency price data from partially informal markets in Peru and a temporary VAT exemption to calculate pass-through in the informal sector, and household survey data to analyze consumption patterns across the income distribution. Results show pass-through in informal markets varies by product (from 0% to 100%), and that households in the bottom 10% of the income distribution spend about 34 percentage points more on informal markets than the top 10%. We use these findings to recalculate VAT incidence in high-informality countries and develop a model to explain this.

While distributional tax incidence has been frequently studied in the literature, little is known about how the rents of evasion are split between consumers and producers. While some theoretical general-equilibrium models would predict factor prices adjust so that firm owners do not benefit from evasion in equilibrium, we have very limited empirical evidence, which so far has only been based on online surveys or imperfect natural experiments. This project aims to quantify the incidence of evasion by conducting an innovative, face-to-face, survey-based field experiment in Italy. Thanks to a randomized treatment design, we elicit average price differentials by the method of payment in order to back out what portion of evaded taxes are passed on to consumers.

In this paper, we study the effect of cross-border tax differentials on fuel tax pass-through and sales responses. Using regional variations in diesel taxes and a comprehensive dataset of diesel prices for all petrol stations in Spain, we find that diesel tax pass-through is asymmetric depending on the sign of tax differentials relative to cross-border competitors. Our estimates reveal that petrol stations on the high-tax side of borders only shift 56% of fuel taxes into prices, while those on the low-tax side exhibit a pass-through of 120% of fuel taxes. In line with spatial pass-through responses, we find substantial spatial fuel tax avoidance responses to cross-border tax differentials. Our findings suggest that spatial fuel tax differentials play a significant role on the geographical distribution of the burden of fuel taxes and contribute to substantial fuel tax avoidance behavior, which may pose challenges to the effectiveness of fuel taxation to reduce CO2 emissions.

This paper explores how optimization frictions in supplier price-setting affect tax incidence. We use a natural experiment that varied the effective hotel tax rate in certain cities at different times to document heterogeneity in tax pass-through using multiple proxies for price-setting acumen. Pass-through is lowest for sophisticated hosts whose prices before the policy closely follow local hotels. In contrast, less sophisticated hosts are much less likely to adjust their pre-tax price, passing the entire tax burden onto consumers. Further investigation suggests that the behavior of these hosts can be delineated into inattention (failure to change price) or lack of skill in price setting which have distinct consequences for demand. Finally, we find that this policy affected market composition, with net entry skewing toward more sophisticated hosts after the policy. We develop a model for welfare analysis which incorporates supplier salience and other price setting optimization failures.