Incidence
Lecture 1
Tax incidence - Theory
- We discuss the difference between statutory and economic incidence of a tax.
Pre-class
Post-class
- Work through the math and graphs from the slides on your own.
- Be sure that you can draw the change in surplus each side of the market faces in response to a tax.
- Then, using the same graphs, relate those changes to the incidence elasticity formula. When you make one side more responsive, what happens to its incidence?
- Do this practice problem finding the change in prices and incidence of a tax.
- Solutions are here
Lecture 2
Tax incidence - Empirical Evidence
Slides (same as lecture 1)
Pre-class
Read the following two empirical articles estimating the incidence of gasoline price changes on consumer prices.
- “$2.00 Gas! Studying the effects of a gas tax moratorium” link
- “Pass-Through of Own and Rival Cost Shocks: Evidence from the U.S. Fracking Boom” link
Be prepared to discuss:
- What is the empirical setting of the article? What is the source of the cost change?
- What are the main results? How much do prices at the pump increase when costs change?
Post-class
- None.