This paper examines whether regulatory changes in price labeling affect the economic incidence of value-added taxes. While most empirical studies identify VAT pass-through using statutory tax rate changes, such settings confound real tax effects with changes in price salience. I exploit a 2021 reform in Japan that mandated tax-inclusive price labeling while leaving VAT rates unchanged, allowing a cleaner separation of labeling from statutory tax changes. Using daily point-of-sale data, I find evidence of temporary under-shifting. Minimum prices declined by approximately 1–2 percent in the weeks preceding the reform and gradually returned to prior levels, whereas maximum prices remained largely unchanged. These findings suggest that firms adjusted pre-tax prices in anticipation of consumer responses to tax-inclusive labeling. The results imply that modifications to price-display rules can alter effective VAT incidence even without changes in statutory tax rates, highlighting the importance of labeling design in consumption tax policy.

We examine the conditions under which changes in value-added taxes lead to price adjustments in products not directly affected by the tax change. We exploit a large and exogenous VAT cut on menstrual products in Germany in 2020 and estimate the pass-through to prices and pricing spillovers on complementary products for which the VAT rate remained unchanged. We use a unique data set of daily prices of 5,000 hygiene products from the online shop of a large German supermarket chain. We document bundling effects as producers of menstrual products fully passed on the VAT cut to prices but significantly increased prices of unaffected complementary feminine hygiene products by 5 to 10 percentage points with no sign of phasing out after more than one year. Producers of panty liners that do not offer products affected by the VAT cut did not adjust prices.

We study how VAT tax cuts propagate along the production network. Using transaction-level administrative tax data and a large VAT reform in Brazil, we trace the effects of tax cuts on prices and quantities along the supply chain. Difference-in-differences estimates show that consumer prices fall following the reform, and that price reductions are even larger for distributors, indicating that upstream firms absorb much of the tax change. We interpret these findings through a simple network model that underscores the role of imperfect competition and network connectivity in shaping tax incidence. Structural estimates reveal that the tax cut compresses upstream markups, amplifying price responses and redistributing surplus away from producers toward consumers. Our results challenge the classical view that VAT is neutral along the production chain and that its incidence can be summarized by consumer-level elasticities.

Despite widespread evidence of consumer inattention and salience effects on prices and consumer demand, little is known about the degree to which “drip” pricing contributes to firm profitability. In this paper, we study investor reactions to several regulatory, legislative, and litigation events intended to limit drip pricing in order to quantify “inattention rents.” Inattention rents differ from ordinary economic rents in that they may even arise in perfectly competitive markets where consumers suffer from inattention. Mitigating inattention (e.g., by requiring advertised prices to be tax and fee inclusive) results in a transfer of surplus from producers to consumers while curbing overconsumption. The announcement of final rules requiring airlines to advertise tax-inclusive prices in the U.S. imply 3-day cumulative abnormal returns of -4% among domestic U.S. carriers, whereas foreign carriers were minimally affected. Proposed legislation related to other forms of drip pricing and targeted litigation have more muted effects.