Díez Alonso, Daniel (2021) Essays in public and behavioural economics. PhD thesis, University of Warwick.

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Abstract

This thesis centres around two main topics of public and behavioural economics: the sources of bias in perceived income ranks and the determinants of passthrough of soda taxes.
Chapter 1 explores the role that income taxes play in shaping taxpayers' perceptions of income distributions. Contrary to the predictions of classical models, low-income people tend to display lower support for redistribution due to a biased perception of society's income distribution. Can income taxes themselves amplify or reduce that bias? I present a theoretical framework that maps the information from the tax schedule onto informative signals that taxpayers use to infer their perceived position in the income distribution. Running probabilistic regression analysis on data from the General Social Survey, I find evidence supporting that changes in the federal income tax system influenced the perceptions of income ranks observed in the USA in the last decades. To identify causality in a controlled environment, I then test the main predictions of the theoretical model by randomising tax systems in an online experiment conducted on Amazon Mechanical Turk with American workers. The results of a large pilot identify statistically significant differences between individuals facing a proportional tax system with a unique average tax rate and those facing a progressive tax system with increasing marginal tax rates. Compared to no tax information (control), facing the progressive tax system used in the experiment induced a 12% higher perceived average income level and a 25% lower perceived probability of being above the average income level among low-income individuals. In contrast, the proportional system did not generate significant differences. These findings encourage further research to identify the exact elements in a tax schedule that generate a bias that can affect support for redistributive policies.
Chapter 2 evaluates the pass-through of sugar taxes on soft drinks in online markets. The UK introduced the Soft Drinks Industry Levy (SDIL), a sort of sugar tax levied on producers, in April 2018. Using web-scraped daily prices from Amazon for non-alcoholic beverages sold in the UK, I explore the pass-through of such tax to online market prices of soft drinks. In addition to the traditional measure of average pass-through, I estimate the impact of the tax on prices of direct (untaxed) substitutes, and I compare categories and package sizes facing different demand elasticity and levels of market concentration. My results confirm the predictions of a general model of tax pass-through in a market with imperfect v competition and product differentiation. The UK sugar drinks affected by the SDIL experienced full pass-through of the tax to consumer prices on average, with over-shifting on middle-sized packages (400ml-999ml). The impact of the tax was larger on prices of cola drinks, the category with lower demand elasticity and higher market concentration. At the same time, prices of sugar-free alternatives also increased by nearly 40% of the tax value, despite being exempted from it.
Chapter 3 investigates the impact of psychological pricing on the pass-through of soda taxes. Following the path of a growing number of countries and the recommendations of the WHO, Spain increased taxes on sweetened soft drinks on 1st January 2021. Nevertheless, the evidence on pass-through of such corrective taxes is mixed, with estimates ranging from 30% to above 100%. Furthermore, psychological pricing is widespread in grocery stores, with over 60 per cent of product prices with odd endings (e.g. .49 or .99) in some countries, and has been linked to price rigidity in other settings. Using web-scraped prices data from three major supermarket chains in Spain, I estimate that psychological prices are a significant determinant of tax pass-through. Looking at the last digit of prices, I find that the VAT tax increase on sweetened drinks overcame the price rigidity of zero and nine-ending prices observed in control items. Indeed, products initially priced at round endings (double zero) over-shifted the tax on consumer prices. On the other hand, items initially priced around the half of a Euro (with the cents digits between 40 and 58) experienced partial pass-through levels below 75 per cent. This implies that corrective taxes may result in more significant price increases in markets with a higher frequency of round endings, even if those endings usually increase the price-rigidity of products facing smaller cost shocks. It also confirms that a tax that accounts for ten per cent of product prices is enough to raise the prices of unhealthy drinks significantly, overcoming the rigidity effect of psychological price endings.

Item Type:	Thesis (PhD)
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HJ Public Finance
Library of Congress Subject Headings (LCSH):	Economics -- Psychological aspects, Soft drinks -- Taxation, Soft drinks -- Taxation -- Psychological aspects, Income distribution -- Psychological aspects, Income distribution -- Social aspects, Income tax
Official Date:	September 2021
Dates:	Date Event September 2021 UNSPECIFIED
Institution:	University of Warwick
Theses Department:	Department of Economics
Thesis Type:	PhD
Publication Status:	Unpublished
Supervisor(s)/Advisor:	Perroni, Carlo ; Gadenne, Lucie ; Almunia, Miguel
Format of File:	pdf
Extent:	vi, 110 leaves : illustrations
Language:	eng

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