What's in a Name? The Incidence of Gasoline Excise Taxes versus Gasoline Carbon Levies

Abstract

Legislators often attach specific names to individual taxes to promote their purpose, increase transparency, and ease public backlash over tax increases. While having political benefits, does the simple act of naming and promoting a tax for a specific purpose have a more meaningful effect in the marketplace? Do consumers respond differently to tax-induced price increases depending on the name and purpose of the tax? In this article, a natural experiment is used to compare consumer responsiveness and tax incidence after the introduction of two new gasoline taxes in Alberta if: 1) an increase in the generic excise tax and 2) an environmentally-targeted levy. While similar in magnitude, the taxes were very different in name, purpose, and transparency. Results show that the naming and marketing of a tax can indeed matter if responses were lower and incidence higher for the carbon levy than the less transparent excise tax. Implications are discussed.