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New Study of Developed Economies Shows Increased Shift of Retail Tax Burden to Consumers

September 29, 2017 3:22 PM

Latest Research by Professor Astha Sen Expands Existing Literature, Informs Corporate Tax Policy Ahead of U.S. Federal Tax Reform

Rohnert Park, California - The School of Business and Economics (SBE) at Sonoma State University (SSU) today announced that new research by Dr. Astha Sen, Assistant Professor of Economics, will be published in Public Finance Review, a professional journal of economic research, theory, and policy applications for the public sector economy. In the study, "Tax Incidence: Do Institutions Matter? An Experimental Study," Professor Sen uses data from laboratory experiments to examine the impact of market institutions, which characterize real-world markets such as stock markets, online vendors, and large retailers, on the tax burden of goods and services.

Professor Sen shows that different market institutions, each governed by different trading rules under the law, result in changes to how tax burden is distributed between producers and consumers of goods and services. In her study, she identifies an increased shift of tax burden from producers to consumers when producers are liable to pay the tax in a given transaction. The research identifies that the shift of tax burden is more severe in retail transactions taking place in developed economies.

The full study may be viewed here: http://www.sonoma.edu/sbe/tax_incidence_manuscript_2-17-17.pdf.

"Our findings show that both the type of marketastha_sen.jpg
institution and the point of tax collection have a significant and independent impact on the economic burden of a tax,"
Professor Astha Sen, Assistant Professor of Economics said. "We identify that the seller is able to shift a greater portion of tax burden to buyers when the tax liability is on the seller. This is most common among large retailers in developed economies."

"Economic theory tells us that tax burden, whether it's placed on the buyer or seller, is independent of actual tax liability. But textbook theory is silent on the role of market institutions. Dr. Sen's research breaks new ground by revealing that certain trading rules increase sellers' ability to shift the tax burden to consumers. This could be valuable insight in advance of U.S. legislative efforts to reform the federal tax system," Dr. Michael Visser, Chair of the Department of Economics said.

Professor Astha Sen has primary research interests in public finance and tax policy, including behavioral and experimental economics. Her research interests include tax policy in the developed and developing economies. She currently teaches microeconomics and public economy. Previously, she worked at Truman State University and the Federal Reserve Bank of Atlanta.

For more information regarding Dr. Astha Sen's research and other faculty research studies, or for information regarding programs and degrees in the School of Business and Economics, please call (707) 664-2377, or visit www.sonoma.edu/sbe.

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