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

59 Pages Posted: 20 Aug 2018 Last revised: 21 Feb 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: 2018-08-14

Abstract

We examine the impact on air travelers of an enforcement action issued by the U.S. Department of Transportation in January 2012 that required U.S. air carriers and online travel agents to incorporate all mandatory taxes and fees into their advertised fares. Exploiting cross-itinerary ticket tax variation within international city market pairs, we provide evidence that the more prominent display of tax-inclusive prices is associated with a significant reduction in tax incidence on consumers and a decline in passenger volume along more heavily-taxed itineraries. Ticket revenues are commensurately reduced. These results suggest a pronounced degree of inattention to ticket taxes prior to the introduction of full-fare advertising and reinforces the theoretical predictions and experimental findings of the literature on tax salience in a quasi-experimental context where taxes average more than $100 per ticket and where firms may engage in price-setting behavior.

Keywords: Tax salience, Airlines, Ticket taxes, Tax incidence

JEL Classification: H22, H31, D90, D18, L5

Suggested Citation

Bradley, Sebastien and Feldman, Naomi E., Hidden Baggage: Behavioral Responses to Changes in Airline Ticket Tax Disclosure (2018-08-14). FEDS Working Paper No. 2018-057, Available at SSRN: https://ssrn.com/abstract=3234195 or http://dx.doi.org/10.17016/FEDS.2018.057

Sebastien Bradley (Contact Author)

Drexel University ( email )

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

Naomi E. Feldman

Hebrew University of Jerusalem, Department of Economics ( email )

Mount Scopus
Jerusalem, Jerusalem 91905
Israel
9190501 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
59
Abstract Views
492
rank
215,233
PlumX Metrics