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Working Paper
Taxes and International Risk Sharing
We examine the extent to which differences in international tax rates may account for the small correlations of per capita consumption fluctuations across countries. Theory implies a close relationship between relative consumption growth, and consumption and capital income tax rate differentials. We find strong empirical evidence for this relationship. Idiosyncratic output fluctuations account for the majority of cross country consumption growth variability, but trends in tax differentials are informative about the dynamic evolution of international risk sharing. In particular, adjusting for ...
Working Paper
Is Sales Tax Included in the Price? Consumer Inattention and Price Competition
Sales tax is generally not included in the advertised price quoted to consumers in the United States. In contrast, value added taxes (VAT) are embedded into the price in most other countries. This article investigates how the two different pricing structures and consumers' decision-making process affect the intensity of price competition. The two pricing structures yield identical market outcomes with fast-computing consumers who are willing and able to recompute the exact sales tax each time there is a price change. With slow-computing consumers, prices and profits are higher when sellers ...