Kory Kroft (Yale University, School of Management) presents Salience and Taxation: Theory and Evidence, 99 Am. Econ. Rev. 1145 (2009) (with Raj Chetty (UC-Berkeley, Department of Economics) & Adam Looney (Board of Governors, Federal Reserve System), at Loyola-L.A. today as part of its Tax Policy Colloquium Series. The commentator is Edward McCaffery (USC). Here is the abstract:

Using two strategies, we show that consumers underreact to taxes that are not salient. First, using a !eld experiment in a grocery store, we !nd that posting tax-inclusive price tags reduces demand by 8 percent. Second, increases in taxes included in posted prices reduce alcohol consumption more than increases in taxes applied at the register. We develop a theoretical framework for applied welfare analysis that accommodates salience effects and other optimization failures. The simple formulas we derive imply that the economic incidence of a tax depends on its statutory incidence, and that even policies that induce no change in behavior can create ef!ciency losses.