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The store management’s fears were well founded. When consumers knew just how much more taxes would cost them, they reduced their purchases of the items by about 7 percent. As part of the working paper-titled “Salience and Taxation: Theory and Evidence,” coauthored by Adam Looney of the Federal Reserve Board and Kory Kroft of Berkeley’s economics department-Chetty surveyed customers entering the store to determine whether they knew which goods were taxed and which ones weren’t. They were generally able to distinguish the two categories. In other words, they knew that an item was taxable, but actually seeing the total cost-including the tax-at the time of a potential purchase discouraged them from buying it.

From a story on young economics star, Raj Chetty.

One Response to “Which is Why Income Taxes Should Be Paid by Check”

  1. Michael says:

    If they ever do make taxes visible, be sure to buy stock in torch and pitchfork companies.

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