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Attending to inattention: Identification of deadweight loss under nonsalient taxes
Author(s) -
Brusco Giacomo,
Glass Benjamin
Publication year - 2020
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/jpet.12401
Subject(s) - deadweight loss , economics , identification (biology) , replicate , consumption (sociology) , aggregate (composite) , econometrics , set (abstract data type) , microeconomics , welfare , computer science , statistics , mathematics , biology , social science , botany , materials science , sociology , market economy , composite material , programming language
Abstract Recent developments in behavioral public economics have shown that heterogeneous biases prevent point identification of deadweight loss. We replicate this result for an arbitrary (closed) consumption set, whereas previous results on heterogeneous attention focused on binary choice. We find that one can bound the efficiency costs of taxation based on aggregate features of demand. When individuals have linear demand functions, the bounds for deadweight loss are easy to calculate from linear regressions.