Hidden Baggage: Behavioral Responses to Changes in Airline Ticket Tax Disclosure

61 Pages Posted: 1 Jan 2016 Last revised: 31 Oct 2019

See all articles by Sebastien Bradley

Sebastien Bradley

Drexel University

Naomi E. Feldman

Hebrew University of Jerusalem, Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 30, 2019

Abstract

We examine the impact of a January 2012 enforcement action by the U.S. Department of Transportation that required U.S. air carriers and online travel agents to modify their web interfaces to incorporate all ticket taxes in upfront, advertised fares. We show that the more prominent display of tax-inclusive prices is associated with significant reductions in consumer tax incidence, demand, and ticket revenues along more heavily-taxed itineraries. In particular, the fraction of unit taxes that airlines passed onto consumers fell by roughly 75 cents for every dollar of tax. These results reinforce prior findings on consumer inattention in a novel institutional setting featuring quasi-experimental variation in tax salience, economically-significant tax amounts, and endogenous price responses.

Keywords: tax salience, airlines, ticket taxes, tax incidence

Suggested Citation

Bradley, Sebastien and Feldman, Naomi E., Hidden Baggage: Behavioral Responses to Changes in Airline Ticket Tax Disclosure (October 30, 2019). Available at SSRN: https://ssrn.com/abstract=2708898 or http://dx.doi.org/10.2139/ssrn.2708898

Sebastien Bradley

Drexel University ( email )

1023 Gerri C. LeBow Hall
3220 Market St
Philadelphia, PA 19104
United States

Naomi E. Feldman (Contact Author)

Hebrew University of Jerusalem, Department of Economics ( email )

Mount Scopus
Jerusalem, Jerusalem 91905
Israel
9190501 (Fax)

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