Does Tax-Collection Invariance Hold? Evasion and the Pass-Through of State Diesel Taxes

Abstract

In simple models, the incidence of a tax is independent of the identity of the remitting party. We illustrate that this prediction fails to hold if opportunities for evasion differ across economic agents. Second, we estimate how the incidence of state diesel taxes varies with the point of collection, where the remitting party varies across states and over time. Moving tax collection upstream from retailers substantially raises the pass-through of diesel taxes to consumers. Furthermore, tax revenues increase when collecting taxes from wholesalers rather than from retailers, suggesting that evasion is the likely explanation for the incidence result. (JEL H22, H25, H26, H71, L71)