Getting into the Weeds of Tax Invariance
We provide the first general empirical test of tax invariance (TIV). When a 25 per-cent tax remitted by manufacturers was eliminated in Washington state and the retail cannabis excise tax was simultaneously increased from 25 to 37 percent—a shift in-tended to be revenue-neutral—TIV did not hold. Manufacturers kept two-thirds of their tax savings instead of passing all their savings through to retail firms via lower prices as predicted by TIV. One-third of the retail tax increase was passed on to consumers via higher retail prices – TIV would have predicted constant or even declining tax-inclusive retail prices.
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