Tuesday, November 29, 2022
Eleanor Wilking (Cornell) presents Tax Incidence with Heterogeneous Firm Evasion: Evidence from Airbnb Remittance Agreements at Boston College today as part of its Tax Policy Workshop hosted by Hugh Ault, Ray Madoff, Beverley Moran, Shuyi Oei, Jim Repetti, Diane Ring, and Steve Shay:
How does the obligation to remit affect consumption tax incidence? In classical tax theory, assigning the responsibility to transfer tax revenue to the government has no effect on which party bears the economic burden of a consumption tax. I explore this prediction in the context of agreements between city governments and a large digital platform firm that shifted the obligation to remit hotel taxes from independent renters to the platform firm itself. Using variation in the location and timing of these agreements, I identify a substantial increase in advertised tax-inclusive rental prices—a violation of remittance invariance—but comparatively modest declines in completed reservations. A contemporaneous increase in hotel tax revenue collections suggests that the policy was an effective tax increase, assessed on previously non-compliant renters. I explore heterogeneity in pass through of this effective tax increase using several proxies for renter price-setting sophistication. Pass-through was lowest among full-space, frequent renters who likely faced smaller optimization frictions relative to more amateur renters. My results indicate that shifting the remittance obligation to the platform increases after-tax prices and raises revenue, suggesting that consumers bear a greater share of the tax burden when the remittance obligation is shifted to a party with fewer evasion opportunities.