<i>E-ZTAX</i>: Tax Salience and Tax Rates^*

TLDR

The study investigates whether tax salience influences equilibrium tax rates. The authors analyze toll changes following the adoption of electronic toll collection, noting that drivers become less aware of electronically paid tolls. The study finds that, in equilibrium, tolls rise 20–40 % with ETC, drivers become less toll‑elastic, and toll setting is less responsive to the electoral calendar, supporting a salience explanation and ruling out alternative causes.

Abstract

This paper examines whether the salience of a tax system affects equilibrium tax rates. I analyze how tolls change after toll facilities adopt electronic toll collection (ETC); drivers are substantially less aware of tolls paid electronically. I estimate that, in steady state, tolls are 20 to 40 percent higher than they would have been without ETC. Consistent with a salience-based explanation for this toll increase, I find that under ETC, driving becomes less elastic with respect to the toll and toll setting becomes less sensitive to the electoral calendar. Alternative explanations appear unlikely to be able to explain the findings.