Getting Into the Weeds of Tax Invariance

35 Pages Posted: 25 Jul 2017 Last revised: 30 Dec 2020

See all articles by Benjamin Hansen

Benjamin Hansen

University of Oregon - Department of Economics; NBER; IZA

Kendall Houghton

University of Oregon

Keaton Miller

University of Oregon

Caroline Weber

University of Kentucky

Multiple version iconThere are 2 versions of this paper

Date Written: December 2020

Abstract

We provide the first general empirical test of tax invariance (TIV). When a 25 percent tax remitted by manufacturers was eliminated in Washington state and the retail cannabis excise tax was simultaneously increased from 25 to 37 percent—a shift intended to be revenue-neutral—TIV did not hold. Manufacturers kept two-thirds of their tax savings instead of passing all their savings through to retail firms via lower prices as predicted by TIV. One-third of the retail tax increase was passed on to consumers via higher retail prices – TIV would have predicted constant or even declining tax-inclusive retail prices.

Keywords: Tax Invariance, Natural Experiment, Excise Taxes, Cannabis, Tax Incidence

JEL Classification: H2, H3, H7

Suggested Citation

Hansen, Benjamin and Houghton, Kendall and Miller, Keaton and Weber, Caroline, Getting Into the Weeds of Tax Invariance (December 2020). Available at SSRN: https://ssrn.com/abstract=3006807 or http://dx.doi.org/10.2139/ssrn.3006807

Benjamin Hansen

University of Oregon - Department of Economics ( email )

1285 University of ORegon
Eugene, OR 97403
United States

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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IZA ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Kendall Houghton

University of Oregon ( email )

Eugene, OR 97403
United States

Keaton Miller

University of Oregon ( email )

1280 University of Oregon
Eugene, OR 97403
United States

Caroline Weber (Contact Author)

University of Kentucky ( email )

Martin School of Public Policy
431 Patterson Office Tower
Lexington, KY Kentucky 40506
United States

HOME PAGE: http://www.uky.edu/~cwki230/

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